Capital Flight from Europe: $27 Billion Lost Since the Beginning of 2023

Investors move their assets from European funds to the US. Morgan Stanley experts are expecting the European stock market to return to November 2022 levels by the end of summer.

Since the beginning of this year, investors have literally “drained” European equity funds, withdrawing 27 billion dollars. Large amounts of money are being transferred to American funds. According to Bloomberg, “in the last week of June alone, the outflow of investments from European equity funds amounted to $4.6 billion.”

In a note published on Friday, June 30, Bank of America, citing statistics compiled by Epfr Global, speaks of a real exodus of capital from Europe, which has been going on for 16 weeks now.

According to Bloomberg analyst Michael Msika, “The flows highlight how a rally in European stocks has petered out at a time when the Nasdaq 100 index is about to record its best ever first half of a year. The UK has been a particular laggard with the FTSE 100 little changed since the start of 2023.”

Poor economic performance in the European region partially reflects the current investor interest in shares of technology giants Mega Cap, whose weight in the US is increasing year after year.  According to research by BestBrokers, tech giants currently account for over 44% of the total market capitalization of all mega-cap companies.  The three most valuable companies, Apple, which recently surpassed $3 trillion in market capitalization, Microsoft, and Alphabet make up over 31% of the total market capitalization of all mega-cap companies.

“Tech exposure is driving regional equity flows again, benefiting US equities and the dollar,” Bloomberg quotes Barclays Plc investment strategist Emmanuel Cau, according to whom ”Europe was the only major region to see outflows in June 2023.”.

“In contrast,” Cau noted, “US investors have started selling European equities for the first time this year, with the weakening in activity data prompting broader outflows from the region.”

Earlier, Bloomberg wrote that “investors got rid of stocks of companies producing luxury goods and the energy sector companies.” The slaughter followed the release of information that China’s economic recovery will be slower than expected.

Finally, according to Morgan Stanley, “by the end of the summer season, the European stock market will be subject to a negative 10% correction due to a possible slowdown in economic growth and deterioration in the liquidity situation.”

Since the beginning of 2023, the MSCI Europe index that includes stocks of large and medium-sized companies from 15 European countries has grown by about 9 percent. In other words, the negative correction predicted by Morgan Stanley analysts will return the European stock market to the levels recorded in November 2022.