Investors regain interest in UK equity funds
Investors have put money into UK equities for the first time in almost three months for the week ending Wednesday, as tumult in Westminster reduced the likelihood of a no-deal Brexit.
Mutual funds and exchange traded funds that invest in UK stocks attracted $197.5m over the seven-day stretch, the first positive sum since mid-June and the largest inflows since early May, according to EPFR Global data.
The inflows come amid a fractious week in UK politics with Prime Minister Boris Johnson suffering a bruising double defeat when a group of Tory MPs sided with opposition parties to support extending the Brexit deadline and Mr Johnson’s efforts to call an election failed.
“The greatest fear of investors was a no-deal Brexit and the events this week seem to have reduced that possibility — that is what has driven these inflows,” said Kristina Hooper, global chief investment strategist for Invesco. “There is an awful lot of political chaos, but the primary impact is being felt in UK equities and the pound.”
The pound gained 1.2 per cent for the week ending Wednesday, partially reversing months of weakening that has wiped 3.3 per cent of its value this year.
UK blue-chips also gained for the seven days ending Wednesday. The FTSE 100 index surged 1.2 per cent higher. The basket of UK stocks has gained 8 per cent this year but remains 1.5 per cent short of the level it held a year ago.
British equity funds have lost $7bn in net outflows this year, bringing the total since the June 2016 EU referendum to $30.8bn, according to EPFR Global data.
UK bond funds also reaped assets for the week through to Wednesday, drawing $71m and marking three consecutive weeks of inflows. These funds have shed $133m in net outflows this year and $10.2bn since the Brexit vote.
“The developments most recently with parliament stepping up against Johnson were on the margin a positive development for the market,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors.
Despite the week’s events, Mr Gokhman believes the UK will crash out of the EU in a hard Brexit scenario. “Clearly others think there is now a chance to kick [Mr] Johnson out, or to force him to take a more conciliatory tone with the EU,” he said.