Big Money is Flowing into European Stocks

Institutional investors are taking their money outside the U.S. for 2014. Where are they headed? Europe.

 
by Jennifer Robinson, FTMDaily.com Managing Editor

U.S. equities have dominated the global investing scene for the past two years, as the S&P 500 has soared 40% since October 2011. However, according to a recent survey conducted by Citigroup, institutional investors are taking their money outside the U.S. for 2014. Where are they headed? Survey results showed that the most-favored investment class is European stocks, followed by Asia-Pacific and then the United States (As a side note, the Citigroup survey showed that the two least-favored classes for 2014 are commodities and bonds).

This trend of money flowing out of the U.S. has already begun. When you follow the money, you see that global ETFs attracted $48.8 billion in the third quarter of 2013, whereas U.S. funds brought in only $31.5 billion during the same timeframe.

European Stocks: Most Favored Asset Class for 2014

As of the week of October 11, 2013, European stocks had experienced 15 straight weeks of money inflows, which is the longest such streak in 11 years. Out of the 14 European stock markets that we monitor weekly for our FTM Insiders, 10 have outperformed the U.S. benchmark S&P 500 index over the last 12 months. Considering the slow economic growth plaguing most Western countries, this is just another reminder that stock prices are rarely related to a country’s underlying economic performance.

One of the European standouts has been Italian stocks, returning more than 23% over the past twelve months and over 10% this month alone.

Greek stocks have been rebounding from the depths of the country’s financial crisis and have gained 23% on the year. Even top hedge fund managers, like John Paulson, have reportedly been investing heavily into the nation’s financial sector. Ireland has emerged to outperform all other European markets over the last 12 months with over 50% returns (PIIGS anyone?).

But how can it be possible that European stocks are performing so well when only two years ago predictions of a euro collapse and Eurozone breakup were all over the financial media?

Flashback to Eurozone “Doom and Gloom”

If you read Time magazine in 2011, you would have come across this headline: “It’s Time to Admit the Euro Has Failed“, in which investment columnist Michael Sivy stated:

Sivy continues by describing possible scenarios of a Eurozone collapse, the most likely in his opinion being:

Perhaps you were following the doom-and-gloom predictions of American Economist Nouriel Roubini during this period. If so, you most likely read his forecast for the Eurozone in 2012, in which he stated that the Eurozone was destined to fail due to its massive debt crisis. And if that doesn’t ring a bell, maybe you followed the Wall Street Journal financial website, MarketWatch. One of its commentators stated in June 2011 that Greece would default on its debts within 12 months.

But you didn’t fall for all the “euro failure” hype, right? No way! You were reading Jerry Robinson’s commentaries right here on FTMDaily, in which he clearly stated that the euro would not collapse. In fact, he declared in March 2011 that the euro would survive and that it was here to stay. In that same article, Robinson states:

Here at FTMDaily, we believe that the currency experiment going on in Europe is the template that will be used by other regional monetary union efforts. Is the euro flawed? Absolutely! Should it fail? Yes. But will the architects of this grand euro experiment permit the currency to disintegrate? We believe the answer is no.

We did not fall for the hype about the euro collapsing, and we will continue to cut through the mainstream media’s smoke-screen and provide you with the “real” stories relating to current economic events. As we always say, “When you’re ready for the truth, just follow the money.”

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