Despite a fall in sales for UCITS and AIFs in May, Bernard Delbecque (pictured), senior director for economics and research at EFAMA believes that we will continue to see inflows into the asset classes.
“Net sales of UCITS and AIFs fell from EUR43 billion in April to EUR12 billion in May, but overall net sales have remained positive since the beginning of the year,” says Delbecque.
In fact, he believes that the first half of this year will be better in terms of net sales than the second half of 2017. “Total net assets reached an all-time high in April (EUR16,556 billion) and in my view there could be a new record in total assets for June.”
“Central banks are showing a willingness to react to a slowdown in global economic growth and on that basis, I would say that equity funds, while not necessarily showing positive inflows, will most likely perform better in June than they did in May.”
However, Delbecque acknowledges that the uncertainty about global economic growth, the IMF revising its global growth forecast downwards and the outcome of trade negotiations between US and China are inevitably making investors and businesses cautious.
“President Trump’s recent 10 per cent decision to increase in tariffs on some Chinese goods validates the fact that investors should remain cautious. Added to that, weak trade prospects create uncertainty for business investments including a risk of disruption in supply chains,” he says.
Delbecque also cites Brexit uncertainty and the Chinese economic slowdown as concerns. “The impact on the UK economy and Europe remains uncertain, and this is not positive news. China is also suffering and as the world’s largest economy. When China suffers it is not good news for the world.”
“Fund managers and investors have to navigate this uncertainty by carefully managing their asset allocation without making dramatic portfolio shifts. Market participants are cautious, but they remain calm. At the moment, they do not fear a global recession and even less a new financial crisis. This explains why net inflows remain positive.”
“In the end, market participants trust that President Trump will not precipitate a major crisis and that central bankers will do their job to help global growth. Only the future will tell if this analysis is right,” adds Delbecque.
New money is flowing into funds, in particular because institutional investors (pension funds and insurance companies), which are the main clients of the fund industry, continue to invest in funds.
“However, retail investors in Europe are mostly investing their new savings from their income into bank deposits and insurance/pension products; in 2017 they reached EUR340 billion and EUR297 billion, respectively”, he says.
“From that perspective, the Capital Markets Union project remains very important because households need to better diversify their savings,” adding, “bank deposits, after fees, offer today negative interest rates in real terms, and the situation is unlikely to change in the foreseeable future.”