(Bloomberg) -- Investors are showing up in strength to the European equity party, pulling out of the previously popular U.S. market.
Stock funds in Europe saw inflows of $1.5 billion in the past week, the most in more than a year, while investors withdrew $1.9 billion from U.S. ones, according to a note by Bank of America Merrill Lynch citing EPFR Global. The region's shares are poised for their best March performance since 2010 amid fading concern that anti-euro candidate Marine Le Pen will prevail in France's upcoming presidential elections.
“Europe has never been such good value compared to the U.S.,” Geoffroy Goenen, the Brussels-based head of fundamental Europe equity management at Candriam Investors Group, wrote in a note this week. “Economic and confidence indicators are extremely positive, while political incertitude will soon be alleviated, providing Europe with fresh momentum.”
Investors are joining a bevy of sell-side analysts who have been cheering for European stocks in recent months, citing cheap valuations, rising inflation and resurgent corporate profit growth. Firms from BlackRock Inc. to Deutsche Bank AG have recommended cutting holdings in U.S. stocks in favor of Europe.
The Stoxx Europe 600 Index has climbed 2.4 percent this month, with the Euro Stoxx 50 Index up 4.6 percent. That compares with a gain of just 0.2 percent for the S&P 500.
Candriam's Goenen says that while profit growth at U.S.-based firms has stemmed chiefly from cost-cutting measures and share buybacks, earnings momentum in Europe has been mainly driven by sales growth, signaling better fundamentals. The cheap prices also help. Stoxx 600 firms trade at about 15 times forward earnings, versus a multiple of almost 18 for S&P 500 members.
Still, it's early days for the turnaround. Investors have put in $1.7 billion into European stock funds so far this year, following redemptions of $113 billion in 2016. By contrast, inflows into U.S. equities exceed $31 billion in 2017.
“Global investors are currently underinvested in Europe,” Goenen wrote. “It would be wise to reinvest in European equities, and to do so immediately.”
To contact the reporters on this story: Aleksandra Gjorgievska in London at agjorgievska@bloomberg.net, Blaise Robinson in Paris at brobinson58@bloomberg.net.
To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Namitha Jagadeesh
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