U.S. equities attracted the majority of global inflows in July, while outflows from UK equities came to a halt, Barclays strategists said in a Wednesday note.
US investors purchased EU equities in June ahead of the French elections, however, due to ongoing political uncertainty and disappointing macro data, they repatriated nearly half of the year-to-date inflows into EU equities in July, strategists note.
The selling of French equities paused after the election, with dip buyers stepping in as major risks appeared to be averted.
“Big picture, long-only ownership of European equities remains depressed with the gap with US equities widening again. Given lacklustre data and softer earnings, it is unlikely to change much in the near term, in our view,” they said.
Meanwhile, after a period of consistent outflows during the first half of the year, redemptions in the UK market have paused recently, with domestic and small caps seeing “notable buying” activity.
“Optimism is clearly seen around FTSE 250 where inflows picked up notably since the UK election was called, and even more after the Labour party won it,” Barclays strategists said.
“We remain positive on UK equities with a preference for domestic assets given the upcoming BOE rate cut cycle and improved political stability in the region.”
Strategists also note that, aside from long-only funds, hedge funds are becoming more optimistic about UK equities, as indicated by an increase in the long/short ratio.
Furthermore, the number of outstanding puts compared to calls has decreased year-to-date, signaling a reduction in hedging activity as the UK market rallies.
Elsewhere, demand for Japanese equities has declined due to the rally in the yen, causing a reversal in carry trades and leading Japanese investors to sell global equities and bonds. In contrast, interest in emerging markets has likely increased due to the weaker dollar, even though foreign investors are increasingly withdrawing from China.