US equities saw a third inflow over the latest weekly reporting period, suggesting at least some folks are buying the dip which, I should note, is a little more than a “dip” in big-tech.
US-focused stock ETFs and mutual funds saw $8.5 billion of net inflows on the heels of a very pronounced dip-buying impulse the prior week.
But the bigger flows story, not in magnitude but rather in terms of the zeitgeist shift, was a fourth consecutive weekly inflow to European stocks.
Recall that as of mid-way through February, Europe-focused equity funds hadn’t seen a net weekly inflow in around five months. Indeed, there were only half a dozen net weekly inflows to European shares in all of 2024, and none of those were large.
But when it became apparent that Europe may have to provide for its own defense in the face of what one might describe as the “Vance Doctrine,” investors took a keen interest in the region’s equity markets.
The latest inflow, more than $4 billion, was the largest since February of 2022, and the four-week rolling sum’s the largest in nearly a decade.
As Nomura’s Charlie McElligott pointed out Friday, this is highly amenable to a “very simple” (his words) interpretation which says investors are looking at who’s expanding fiscally and who’s not anymore.
Germany this week announced an epochal pivot towards big spending on defense and infrastructure, potentially opening the floodgates for the rest of Europe now that the debt-averse Germans are poised to throw off the self-imposed straitjacket. At the same time, the US is making noises about shrinking federal outlays.
It’s no coincidence that the DAX, even after selling off Friday, outperformed the S&P this week by more than 5ppt, a huge margin.
As the figure shows, German shares have outperformed their US counterparts every week this year.
Charlie went on to describe “a nascent-but-obvious money flows rebalancing dynamic, with US shares increasingly acting as a ‘source of funds’ into under-owned / legacy underweight European and Chinese equities.”
BofA’s Michael Hartnett made similar remarks. “No way investors are now big structural overweight of say Europe versus US tech,” he wrote, noting that “for every $100 of outflows from European equities since the start of the war, there have been just $4 of inflows in past four weeks.” The implication: This shift potentially has a very long way to run.
The figure below, from McElligott, gives you additional context.
That chart uses the same EPFR data. Charlie’s comparing rolling two-month flows to US-focused equity ETFs and mutual funds to the same flows for funds focused on non-US shares as a group.
“This is nuanced and currently isn’t a pure outflows / inflows dynamic, but there is a preference shift as, directionally, the long-term theme of RoW outflows is reversing,” he said, suggesting this dynamic “can continue to act like a wet blanket on US equities.”
Needless to say, this nascent shift wrong-footed a lot of investors who were all-in on the “US exceptionalism” / “American TINA” narrative when 2025 dawned. Regular readers will kindly recall that on February 4, I innocently asked, “Is The 2025 ‘Buy America’ Credo Too Consensus To Be Right?”
