Investor funds flowing in at unprecedented rates this year - where are these funds being directed?
In the first half of 2024, investors have been putting record amounts of money into equity funds, with a total investment of £11.39bn. This trend is driven by hopes for cheaper money, according to Edward Glyn, head of global markets at Calastone.
The FTSE 100 reached record highs in May, and London Stock Exchange-listed companies are looking cheaper than their US counterparts. The change in the international perception of the UK is likely contributing to this shift.
While money was taken out of property funds with £48m of outflows in June, equity funds saw an inflow of £1.72bn during the same month. However, there was a £3.75bn outflow from UK-focused funds, indicating a preference for international investments.
The most important target markets for funds invested by UK investors in equity purchases are the United States, the United Kingdom itself, and European countries such as Germany and France. North America, particularly, is the main driver of equity fund inflows in 2024, with the popularity of technology stocks such as the Magnificent 7 contributing to this.
The Bank of England is considering a potential interest rate cut, which could further boost equity investments. A reduction in the risk premium for UK assets could accelerate sterling's move and positively surprise the equity market.
The country's manufacturing and services purchasing managers indices have all turned positive, unlike its European neighbours. Additionally, real wage growth and employment data in the UK have both beaten analyst expectations.
The European Central Bank's recent decision to cut interest rates has increased hopes that other central banks, including the Bank of England and the Federal Reserve, will follow suit. This could continue to fuel the record investments in equity funds.
However, investors withdrew £471m from bond funds in June, suggesting a shift towards riskier assets. As the second half of 2024 unfolds, it will be interesting to see if this trend continues and how the UK's equity market performs.
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