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.â€
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.â€
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.