The introduction of the euro and the stabilisation of modest returns on fixed income investments have left European equity markets in favour. Mutual fund investors are looking at equity markets as a source of heftier returns and the growth of the equity fund market in Europe is demonstrated by the bar graph below.
Based on data from Salomon Smith Barney, the chart shows the volume flowing into European equity funds has grown five-fold in the past 18 months from $4.4bn in January last year to a peak of $22.1bn at the end of February. Fixed income has traditionally been the preferred investment vehicle in Italy but the breakdown of the total’s constituents show the country’s remarkable surge to become the market leader. At the beginning of 1999, the Spanish and Swedish markets outstripped the volume flowing into Italian funds; 14 months on and the Italian market is the largest with an inflow of $6.3bn in March.
Such is the popularity of European equity funds, there are only two months when they were in deficit. In January 1999, $200m left UK funds and last June, $300m left French funds. Otherwise, the seven markets charted have been better off month on month for the last year. Breaking down to the county level, the Dutch market has stagnated on a steady $100m monthly inflow, unchanged in 13 months. The German market, already relatively mature at the beginning of the sample period has shown less growth than average but still up a respectable $1.4bn from $3bn between January 1999 and last March.
The French market, like the Italian, has surged. At the euro’s launch, French equity markets were attracting $500m a month, a figure now standing at $3.3bn in April, down from a peak of $4.8bn in February. The influx leaves the French market on a par with the German, both second only to the Italian market. Elsewhere, Spanish equity funds have benefited from the euro with total inflows up more than four-fold to $1.7bn. The Swedish market maintains a monthly inflow of around $300m and the UK market has risen from next to nothing to over $1bn in March. Dickon Reid