A battered Eurozone seems to be on a slow road to recovery. Spain finally emerged from its two-year recession in the third quarter, and this summer marked the first time in three years that the Eurozone didn’t suffer from a financial crisis. Last week, the European Central Bank lowered interest rates to 0.25%. These signs of life highlight improving economic signals and investor confidence in the region – a sentiment echoed by our own Russ K – and are sparking a surge in select European ETF flows.
Investors flocked to German equities during the height of the Eurozone crisis in 2011, seeking stability in core countries and dumping pan-European exposure. Today, we’re witnessing the exact opposite. ETF flows data shows a 52% increase in inflows for pan-European equities since July. In October alone, the sector witnessed a record $7.9 billion in inflows, breaking records for the third consecutive month in a row. UK equities followed, growing 18% over the past month. Emerging markets and Japan equities saw 15% and 14% growth, respectively, while the U.S. lagged them all with an 11% growth rate.
By taking a “reverse defense” strategy, it seems investors are now pursuing a more diversified approach. The following chart illustrates this trend during the month of October:
In his latest Investment Directions report, Russ Koesterich says “we continue to advocate a benchmark weight to the Eurozone. Economic data continues to look promising, adding to signs that the single-currency bloc’s recovery is gaining momentum.