Ongoing monitoring from EPFR shows Europe equity funds ended 2009 with record inflows yet have steadily seen outflows ever since, starting initially with the Greek debt crisis. During this time, fund managers and buyers have both reduced their allocation to the region. Both groups also have a different outlook for Germany, France and the Netherlands compared to their view of the GIPSI (PIIGS by another acronym) countries that may involve the dissolution or radical restructuring of the eurozone.
The first eight weeks of the year saw investors turn their attention away from emerging and towards developed markets, for the first time since 2007. However, from April onwards the tide changed and strengthened towards the year end with investors now being net redeemers for the 27th consecutive week.
The trend among global fund managers has mirrored that of institutional buyers who have rotated their European holdings towards funds whose primary mandate is German equities.
The latest EPFR report says: “Between April and July global, Europe and global ex-US equity funds boosted their allocations for Europe’s dominant economy to their highest levels in over two, five and nine years respectively.”
Since September exposure to Germany has been trimmed as the crisis looked to spread across the eurozone to include Germany, France and even Switzerland.
Direct exposure to developed European debt continues to fall with outflows posted for 40 of the 46 weeks year-to-date. Global fund managers hold the opposite view, with the average weighting among for developed Europe reaching a 31-month high going into May before starting to slide. Contrary to their equity counterparts, bond investors are not as favourable towards Germany. Allocations that peaked at just over 15% in early Q2 2008, reached the bottom of 6% at the end of Q1 this year, before hitting 10% moving into November.
As the trials and tribulations of the five GIPSI markets continue, fund managers have significantly increased allocations to Scandinavian countries. But overall, country flow data shows Italy still second only to Germany as the main destination for the money allocated by EPFR Global-tracked bond funds to European markets.