Mike Kemp/In Pictures via Getty Images
- European stock funds drew in $3.4 billion last week, the largest inflow since early 2022.
- Investors want exposure to the euro area as it looks increasingly likely it will avoid a recession.
- A warmer-than-expected winter and China's reopening are aiding Europe's economic prospects.
European stocks have pulled in the most cash in almost a year, according to figures released Friday, as the regional economy looks increasingly likely to stave off a recession.
Investors poured in $3.4 billion into European equity funds over the past week, Bank of America said in its Flow Show note published Friday. The amount was the most since February 2022, with BofA citing global funds tracker EPFR for the dollar amount.
"Helped by a warm winter that has left natural gas storage tanks nearly full and the prospect of renewed Chinese demand for the region's exports, sentiment towards European assets has thawed rapidly in early 2023," Cameron Brandt, EPFR's director of research, said in a Friday note.
The STOXX Europe 600 has gained 7% so far in 2023. Early winners included German engineering and steel heavyweight ThyssenKrupp AG, with shares up by 33% in Frankfurt trade year-to-date, and luxury brands retailer LVMH Moët Hennessy Louis Vuitton. Its stock has climbed 17% in Paris trade.
European leaders stockpiled fuel to prepare for a harsh winter after Russia cut its supply of natural gas to the region in the wake of its war against Ukraine. But demand has been weaker than anticipated, leading to a roughly 70% crash from highs for natural gas prices.
Meanwhile, China, the world's second-largest economy, has been reopening activity there after recently retreating from its strict COVID lockdown measures. China is the world's largest oil importer and is among the biggest markets for luxury goods.
Calls seeing the euro area's ability to sidestep a recession this year have been picking up.
"The economy may still be shrinking a little in the first quarter, but, given the improvement in expectations for the next month we're seeing now from businesses, it is very unlikely we will have a technical recession which would be two negative quarters," Ifo President Clemens Fuest told CNBC.
The closely watched Ifo business sentiment survey in Germany rose in January, a fourth consecutive monthly increase. EU Economic Commissioner Paolo Gentiloni said this week there's "a chance to avoid a deep recession," for the bloc.
"The recession that people feared six months ago is not happening," Goldman Sachs chief global equity strategist Peter Oppenheimer told Bloomberg on Friday.