Fund Managers Don't Think This European Stock Rally Will Last

(Bloomberg) -- European stocks are climbing, but investors aren’t waiting for more gains.

While the Stoxx Europe 600 Index is poised to post its fifth consecutive weekly advance -- the longest streak since October -- investors have been yanking money out of funds that track the region’s equities. To some, this shows traders are eager to cash in on the rebound rather than bet stocks will continue to climb at a time the region is facing a slowdown in economic momentum.

“We are seeing monetary conditions that are bound to become tighter, a softening in the region’s exceptional rate of growth, a euro that could rise again after the recent weakness, and bond yields going up, so investors have more choice,” City Index market analyst Ken Odeluga said by phone from London. “There are many other opportunities out there.”

Even as the pressure on European profits from a strong euro has subsided amid the shared currency’s recent drop, earnings revisions -- which measure the analysts upgrading their forecasts relative to the ones downgrading them -- have stayed negative in the five weeks through April 20.

European stock funds had $1.5 billion in outflows in the week through April 25, a seventh straight week of redemptions, according to a Bank of America Merrill Lynch note citing EPFR Global data. Fund managers pulled money out of U.S. equities as well, while emerging-market stocks saw inflows.

Data on Friday showing French economic growth cooled sharply in the first quarter underscored the slowdown evident throughout the euro area. European Central Bank President Mario Draghi acknowledged the recent numbers during Thursday’s policy meeting, saying the euro zone is experiencing “some moderation in growth.”

Meanwhile, the recent strength in bond yields gives investors an additional reason to reconsider their allocations as equities could become a relatively less attractive asset class, Odeluga said. The yield on the 10-year U.S. Treasury breached the closely-watched 3 percent level this week for the first time since 2011.

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