Europe inflows have ‘plenty of room to recover’ despite record week


European equity funds have “plenty of room to recover” from the mass outflows they saw in 2016, despite record inflows of $6bn this week, Bank of America Merrill Lynch says.

European equity funds saw outflows of $103bn in 2016.

For retail sales, BAML notes the recent pick up in inflows amounts to only $14.8bn cumulatively and that significant potential upside remains if aggregate retail flows recoup more of the outflows seen last year.

Within US listed ETFs rolling eight-week flows equal 12.9 per cent of average AUM. Peak levels seen in 2012, 2013 and 2015 were between 25 per cent and 32 per cent, BAML notes.

In a report released today, BAML says feedback from clients suggests that many were waiting for the second round of the French presidential elections before committing to Europe. 

US listed ETFs suggest the results of the Dutch elections, where far right Geert Wilders failed to gain traction, prompted inflows to inflect higher.

The plausible bull case for Europe is that it can trade back up to those valuation levels based on falling political risk, a genuine earnings recovery and recovering inflows,” the BAML report says.

It notes Europe has had the best earnings season in 15 years and while valuations are not at depressed levels, at 15.4x the market still has 9 per cent upside to recent peak multiples.