LIVE MARKETS-Where is European equities' outperformance as inflows pour in?

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WHERE IS EUROPEAN EQUITIES' OUTPERFORMANCE AS INFLOWS POUR IN?

Investors are opting for Europe as they shift assets out of the U.S., with the region's equity funds clocking their largest weekly inflow in eight years, according to Bank of America.

But softening relative growth momentum, FX headwinds and good news already being priced explains why European equities haven't massively outperformed, say the strats.

Europe's outperformance versus global equities is just 1% since April 2.

The lack of stronger gains has prompted investor questions to BofA, and their explanation is three-pronged.

Firstly, growth is stagnant.

"...following sharp improvement in the Euro area versus the US PMI since November last year, the Euro area's relative PMI has deteriorated again over the past two months," they write in a note.

Secondly, a surging euro is creating headwinds for European equities due to its impact on foreign earnings.

Finally, much good news was already priced in. European equities outperformed their global peers by 15% between late 2025 and mid-March, already encapsulating economic improvement and the German fiscal stimulus boost.

The BofA strats do not share growing optimism for further European outperformance; they are neutral on the space.

"We also remain negative on European equities in absolute terms, given our expectations of a 4-point decline in the global PMI by Q3 in response to the drag from higher US tariffs."

A global slowdown of this magnitude implies a renewed 10% downside for the STOXX 600 to 460 by the third quarter, they say.

(Lucy Raitano)

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