A couple of days ago, while editorializing around the largest net inflow to European equity funds in over two years, I suggested the RoW outperformance narrative was rapidly gathering adherents.
It’s exceedingly rare for Europe-focused stock funds to see a net inflow during a given week. Large inflows are rarer still. But the tide appears to be turning amid controversial Ukraine “peace” talks, which began this week in Riyadh, where enjoys for Donald Trump and Vladimir Putin sat down to discuss the future of Europe. Notably absent from the negotiating table: Europe.
Investors don’t care so much about the optics, and they care even less about morality, so the rather lamentable prospect that Ukraine’s fate will be decided without input from Kyiv or Brussels isn’t a reason to shun European equities. The opposite in fact. Peace is peace, even when it’s not, and even when it’s forced upon one side at significant ideological cost: There’s no right to self-determination anymore, or at least not one the US will defend.
Ironically, European shares are also getting a boost from the perception that this particular forced peace will light a fire under the perpetually moribund European economy by raising the odds of a future conflict, and thereby defense outlays in the here and now. One way or another, the story goes, the Europeans will need to spend more, and probably a lot more, on weapons in a world where America’s security guarantees are only as good as Donald Trump’s word.
So, in a sense, European shares are in favor due both to peace and war. If that seems somehow untenable to you, you’re (probably) not wrong, but for now, it’s winning converts from the heretofore dominant “US exceptionalism” zeitgeist.
Indeed, professional money managers suddenly believe European shares will be the best-performing global equity market in 2025. That’s according to the February vintage of BofA’s closely-watched Global Fund Manager survey, released on Tuesday.
As the figure shows, the Euro Stoxx grabbed 22% of the vote, while big-cap US tech managed just 18% this month, the same as the Hang Seng.
The sunnier view on Hong Kong shares is a reflection of the DeepSeek shock and China stimulus hopes, but more generally, it’s another manifestation of the abrupt rethink around the previously consensus “US exceptionalism” story.
In the same poll, nearly nine in 10 respondents said US stocks are overvalued.
As the figure shows, that’s the largest share on record.
And yet, as BofA’s Michael Hartnett was keen to note, “decade-to-date, an average 81% of FMS investors have consistently viewed US equities as overvalued.”
In other words, the perception that US shares are trading rich needn’t be, and hasn’t been, an obstacle to outperformance.
Oh, and when asked which asset class will perform best in 2025, more survey participants picked gold this month than US stocks.
“And yet, as BofA’s Michael Hartnett was keen to note, “decade-to-date, an average 81% of FMS investors have consistently viewed US equities as overvalued.” In other words, the perception that US shares are trading rich needn’t be, and hasn’t been, an obstacle to outperformance.
It’s soooo tempting for us old timers to focus too much on “valuation” measures rather than market cash flows. And more recently, “where’s the vix going?” (The algos don’t are about morality!)
Not to say that I don’t succumb to that now & then, even though I know it is foolhardy. I witnessed and internalized a living example of that when I was a spot bullion trader in 1979-1980. During the whole way up the RSI index was pegged at 99% which was said to be a clear sell signal. On the way down, that same RSI lingered close to zero, giving a clear buy signal. It was a good lesson I wish I had heeded even more than I have.
Sorry that you think I am always wrong even if I have made more for my clients than anyone else allive. Of course my trick has been trading in global govvies – (for gov types at very cheap fees) – investing in global, macro FX/cash. Gold is a sideline, but fascinating. The fact that gold was first this month is a bad sign for the world. It is a Trump mental confusion. As soon as Bessent says buy or revalue, it has peaked for the year (or more). With the U.S. course, the world is going to try gold at some outlandish level – it is a way to clear defaults (it is better than killing Jews in the middle ages). I know it won’t work, but. It will not be crypto as no government with armies ann bambs is going to let the txing and printing power to be taken away. Your practical ideas wold be appreciated.