The latest flows of funds indicate as reported by Deutsche Bank on the 1st of September in their report entitled "Investors return back to European equities on hopes of (private) QE":
"European funds attract solid inflows on hopes of (private) QE: A week after the Jackson Hole symposium, Total equity funds recorded the 3rd consecutive week of inflows (+0.1% as % of NAV), led by solid flows into Western European and Emerging Asia equity funds.
Following a stack of disappointing economic data releases in Europe over the last few weeks and subsequent outflows thereafter, Western Europe equity funds rebounded strongly with solid inflows (+0.2%, highest inflows in 11 weeks) in anticipation of a possible (private) QE announcement during this week’s ECB meeting. DB’s economists are bringing forward the timing of the announcement of private QE (ABS purchasing) to 4th Sep’14, though admitting it’s a very close call. They expect it not to be a generic QE with government bond purchases and expect ABS purchasing would act as a complement to the already announced TLTRO. What to make out of this?
Observing flows returning back to Europe, we think investors would play this trade mostly via ETFs (Europe ETFs had +0.4% of inflows last week). A basket of common names constituent to the ES50 and the DAX30 could benefit overproportionally as 1) these indices are by far the two largest targets to invest the region via ETFs and 2) where the share of equity held by ETFs is particularly pronounced for these names. This basket’s outperformance in Europe correlates well with flows (top below chart)."
"ETF flow has become an increasingly important driver of stock returns over the past years as the share of equity held by ETFs has gone up significantly. In case of the DAX, this share has increased to 6.2% from 0% 10-years ago (Figure 1)."
Hence, it doesn’t seem too far-fetched assuming that stocks constituent to both benchmarks could benefit/suffer over-proportionally depending on flow in and out of these vehicles. Figure 2 highlights the blend of stocks constituent to both indices.
Should the money flow return to Europe (predominantly via ETFs) once positive economic surprises come through as implied by our credit impulse framework, we think the recent pull-back (and subsequent underperformance of the basket) should be seen as an attractive entry point." - source Deutsche Bank
In similar fashion to Deutsche Bank our good friends at Rcube Global Asset Management in their latest note entitled "Is Europe's situation so bad that it is good?", posit the following:
"Global equities have reached a strong resistance level, sentiment is frothy (EM and US), breadth is poor, bearish technical divergence abound; all this makes a larger correction likely. This would create a great buying opportunity for European equities for a year end and H2 2015 rally. The periphery and banks should be the clear winners".
As explained below, in the medium term we strongly believe that European equities are going higher. So this is only a question of timing.
Our Equity model for European equities is sending its stronger buy signal since just after the 1987 crash
Valuations according to our methodology are the cheapest since March 2009 thanks to the yield meltdown
- source Rcube Global Asset Management