Quarter 3 - 2016
– The overall average throughout Europe is positive. Almost half of those who have any exposure at all to property are looking to buy more.
– However, this hides a great deal of variability. The standout countries in terms of demand are The Netherlands, Germany, Denmark, Finland, Spain and Belgium. The countries with significantly low levels of demand are Luxembourg and Norway.
– The only countries with a significant number of people looking to reduce their property weighting are France and Finland, but both those countries also have a reasonable number of fund selectors looking to buy more.
– The fund flows graph underneath shows the total assets going into Europeandomiciled funds. The aggregate over the past year is positive. You can see there was a big sell-off in March 2016 but the flows back in both April and May more than made up for it.
– If you just took UK-domiciled funds, there were further strong outflows in June and July post-Brexit when investors panicked. But as these numbers show the aggregate of all European-domiciled funds, it is less extreme.
– The top graph shows net sentiment numbers: zero means that the number of those wanting to buy is exactly matched by the number of sellers; a positive number means that there are more buyers; negative means more sellers.
– It compares the net sentiment of European fund selectors to Europe, GEM and Asia ex Japan equities. As you can probably see, for quite a lot of the time, when demand for Europe goes up, demand for GEM and Asia goes down and vice versa. There has been a fairly consistent negative correlation.
– We use the term ‘fairly consistent’ carefully, however, because it does change over time. The graph underneath shows the correlation between GEM and Asia to European equities: 100 means perfect correlation, -100 perfectly negative and zero means no discernable pattern at all.
– As you can see in 2015, EM and Europe reversed their negative correlations and became a little bit correlated – never more than 60% but nonetheless it was positive. Since the start of 2016, however, it has all reverted and now attitudes towards Europe and emerging equities are once more utterly divergent.
As Brexit negotiations draw to a close we looked into how UK and European fund selectors are planning on preparing for the upcoming year, how Brexit will affect their allocations and who they feel will lose out more after March 2019.
The great majority of wholesale fund selectors believe that ESG screening enhances investment performance.
Global emerging market (GEM) equities have been one of the most popular asset classes among pan-European fund selectors since Q3 2015 – but demand dropped dramatically during Q2 2018.
The fact that Europe is at an earlier stage in its credit cycle than the US is likely to drive issuance. While the US Federal Reserve has already embarked on rate hikes and begun unwinding monetary stimulus, the ECB is unlikely to begin hiking until it winds down its bond purchase programme, which is not expected to occur until later this year, and possibly not until next year. When rate hikes appear on the horizon, companies in Europe and elsewhere are likely to step up issuance in euro debt before it becomes more expensive to do so.
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