Mutual funds investors abandoned Europe in droves last week, with withdrawals from continental equity funds hitting the highest level since March, and outflows from bond funds nearing $17bn over the year to date, as fears over the continent's sovereign debt crisis hit a new high.
As Italy's cost of borrowing soared towards 7 per cent yesterday - a similar level to that which forced Greece and Ireland to seek European bailouts - the data provider EPFR Global released figures that underlined how seriously investors are taking the debt crisis. Outflows from European equity funds hit a 17-week high during the week ending July 13, the firm said, while European bond funds lost investors for the 29th week running. Most other types of bond funds are attracting new cash at the moment, EPFR added.
Fund managers' dismay at the continuing crisis was much in evidence, thanks to renewed fears over Italy's ability to pay its debts. A second round of "stress tests" of European banks failed to calm the markets; a straw poll of contacts carried out by Financial News on Friday found that nearly three-quarters of investment bankers, analysts and investors said they did not believe the tests “reflected the true state of European banks”. Willem Sels, the UK head of investment strategy at HSBC's Private Bank, wrote: "The markets turned their attention to Italy, the eurozone’s third largest economy, and the world’s third largest debt issuer. Is this the endgame for the eurozone? We think not, but we expect to see more volatility over the coming months".
EPFR pointed out that amidst the turmoil, gold funds are once again doing well, with "enthusiasm for the precious metal" driving "the biggest inflows into commodities funds in 14 weeks". Again, its statement yesterday did not put a dollar value on the inflows.
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