US Equities Experienced Significant Inflows in July as UK Outflows Ceased: Barclays

U.S. equities dominated global inflows in July, while outflows from UK equities came to a standstill, according to strategists at Barclays in a recent note.

In June, U.S. investors showed interest in European equities in anticipation of the French elections. However, due to ongoing political uncertainty and disappointing economic data, they retracted nearly half of the year-to-date inflows into European equities in July.

Following the election, selling pressure on French equities subsided, with buyers entering the market as major risks appeared less imminent.

“Overall, long-only ownership of European equities remains subdued, and the disparity with U.S. equities is widening again. With lackluster data and softer earnings, we believe this situation is unlikely to change significantly in the near future,” the strategists commented.

In the UK market, consistent outflows experienced during the first half of the year have recently halted, with notable buying activity observed in domestic and small-cap stocks.

“Optimism is evident as inflows have notably increased since the calling of the UK election, and even more so following the victory of the Labour party,” they added.

The strategists expressed a positive outlook on UK equities, favoring domestic assets in light of the anticipated Bank of England rate cut cycle and improved political stability in the region.

Additionally, they indicated that hedge funds are growing more optimistic about UK equities, as evidenced by an increase in the long/short ratio. The number of outstanding puts compared to calls has also decreased year-to-date, indicating a reduction in hedging activity amid a rally in the UK market.

On the global front, demand for Japanese equities has declined due to the yen’s rally, which has reversed carry trades and prompted Japanese investors to sell off global equities and bonds. Conversely, interest in emerging markets appears to be on the rise due to a weaker dollar, despite an observed retreat of foreign investors from China.