Citi says European stock outflows are at euro zone crisis levels

 

Bloomberg

Investors are abandoning European stocks at levels last seen during the euro zone debt crisis, according to Citigroup Inc. strategists, adding that this could represent a contrarian signal to buy.
European equity funds are on track for eight straight months of outflows totalling $98 billion, or 6% of assets under management, the bank said in a note citing EPFR Global data.
On that basis, cumulative redemptions are now worse than the Covid-led selloff in 2020 and are comparable to the 2011-12 euro zone crisis, strategists including David Groman and Beata Manthey said.
In previous cases when outflows hit 6%, the MSCI Europe Index subsequently gained 16% over the next 12 months, they wrote — noting that the global financial crisis was an exception when the selling continued.
This time around, the European economy is again teetering on the brink of a recession brought on by scorching inflation, a hawkish central bank and a severe energy crisis. The benchmark Stoxx 600 Index sank into a bear market after falling more than 20% from its January record high, and this week, strategists at Goldman Sachs Group Inc. said they expect regional earnings to fall 10% next year.
Barclays Plc strategists said in a Wednesday note that “European equities look under-owned, very cheap and somewhat priced for the worst, which means that their risk-reward may be tilted positively vs. more expensive and well-owned US equities.”
They added however that “without some kind of resolution to the war and to the terms-of-trade shock facing the region, we doubt cheap valuations will be enough to reverse fortunes for Europe.”
That view is supported by some technical indicators. Although the Stoxx 600 is now in so-called oversold territory — often a precursor to a rally — the benchmark has fallen back below the key 400 points level, which has been a source of major resistance in the past two decades.

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