markets & Strategies | european investors are beginning to take long-term equity holdings
Definite signs that European investors are regaining confidence in equity markets is confirmed by net new sales data into equity mutual funds, published by FERI Fund Market Information.
At E3.9bn, total equity flows in June were more than double those of May, although still some way off their high point of E9.5bn in March 2002.
"We have seen the same trend with our sales," said Meera Patel, a financial adviser with Hargreaves Lansdown. "There has been an increase in sentiment and confidence, though this is slightly delayed," she added.
Patel noted, with hindsight, that March would have been the best time to invest in equity: 12 March being the lowest point in the market.
Despite this upbeat sentiment, Hargreaves Lansdown is advising clients to be cautiously optimistic of the equity market.
"A lot of the rise is sent-iment-driven, rather than on fundamentals," said Patel. "Fundamentals are starting to improve, but we won't know whether they have really improved until the beginning of next year." Patel is also wary that much growth is happening in the small to mid-cap market, which over the past six months has risen by 30%. "Do we want to continue piling money in this same area, or should we start looking at larger companies?" she asked.
She also pointed out that speculation of a UK interest rate rise will adversely affect the equity momentum. "Even a quarter percent rise will be enough to hurt the economy," she said.
Julie Whittle, director of business development at Chase de Vere in London, noted that despite concerns of an interest rate increase, investors appear to be investing seriously in equity, rather than dabbling with the market. "They are taking larger portions of cash and moving into equity. Rather than dabbling in equity on a short-term basis, they are taking longer-term positions," she said.
The winners, according to FERI's latest data, appear to be international fund companies, particularly those which have worked for over a decade to build their European operations.
International groups made the largest contribution to this equity 'peak' with net sales of E2bn, or 53% of the European total.
"During the last twelve months it has been the international groups, with their dominant focus on equity products, who really suffered the worst of the market downturn," said Diana Mackay, managing director of FERI FMI.
"However, after more than a decade of hard labour, they are now sufficiently well established in most European markets to get the best of the upturn as it develops."
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