Investors have drained $83 billion out of European stock funds over the last 6 months, with $3.4 billion of that in the week ending September 7th, according the EPFR Global data that’s cited in a Bloomberg article. BlackRock, Bank of America and JPMorgan Chase are all among the investors who have pulled out funds. With the continuing war in Ukraine, energy rationing on the winter horizon, a looming recession and the European Central Bank’s hawkish pivot, it’s uncertain how Europe will overcome these obstacles.
The energy crisis in particular is putting the squeeze on European governments, forcing them to tap into their cash reserves to pay for possible price caps due to Russia’s weaponizing of gas supplies. Though Europe’s main stock index is only down 14% this year, it’s because equities have not fully priced in the energy crunch, Wei Li of BlackRock told Bloomberg. Fears that a complete shut out of Russian gas could send the continent into a recession have sent predictions soaring up to 60% last month. And Germany in particular has been targeted by short sellers given its wide exposure to gas shortages.
But investors are also betting against bonds, which are usually a safe haven during recessions, as the ECB raised interest rates by a record 75 basis points last week and signaled more raises were to come. As a whole, the picture is decidedly gloomy for Europe, more so than elsewhere around the globe. European-based ETFs are seeing the biggest outflows in 15 years at the same time that managers have added $166 billion to global stock funds. That discrepancy would point to the effect the Russia-Ukraine war is having on the region, the article contends.
Even Amundi, a long-time investor in Europe’s markets, is cutting its equity exposure and taking a more defensive approach to European stocks, with its CIO Matteo Germano telling Bloomberg that there are more “value opportunities” in the US than in Europe right now, because “Europe is more exposed to the stagflationary shock which is aggravated by the geopolitical tensions and the region’s reliance on imports of Russian energy.”