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After RM165b exit, Morgan Stanley says give Europe a chance

Financial traders monitor data on computer screens on the trading floor inside the Amsterdam Stock Exchange, operated by Euronext NV, in Amsterdam, Netherlands, on Friday, Sept. 15, 2017. Frankfurt has the banks, and Paris has the culture, but for trading firms looking for a post-Brexit European home, Amsterdam may have the best attraction of all: a friendly regulator.

By BLOOMBERG

LONDON • No other region has suffered Europe’s massive outflows this year, and that’s exactly why Morgan Stanley said it’s time for investors to take a fresh look at these stocks.

“From a relative perspective, Europe (and European exposure) looks increasingly attractive,” Morgan Stanley strategists, led by Graham Secker, wrote in a report. “Having seen the largest outflows of any region over the last six months, Europe appears unloved and undervalued just as the growth newsflow starts to pick up.”

Investors pulled money from European equity funds for the 25th consecutive week last week, bringing year-to-date outflows to US$40 billion (RM165.2 billion), according to Bank of America Merrill Lynch, which cited EPFR Global data.

In contrast to US equities, which have been seeing inflows, stocks in the region have suffered under trade and political concerns, with the Italian coalition government’s spending plans providing the latest cause of trader anxiety.

Morgan Stanley agrees that Italy poses the key risk to European markets right now, but said this threat is mostly priced into valuations.

Another reason Morgan Stanley is optimistic about European stocks is the rally it sees coming for value stocks into the end of the year, with few sectors better-placed than banks, a major slice of the Stoxx Europe 600 Index.

The MSCI Europe Value Index is down 6% this year, compared to a gain of 2% for its growth-peer gauge.