Wednesday, May 25

Investors pull £5bn from UK stock market funds after EU referendum



Investors pulled £5.7 billion out of UK-based stock market funds, preferring to put their cash into safe havens due to concerns over Britain’s vote to leave the EU.

Figures from data company Morningstar showed worries over the referendum results prompted investors to withdraw £5.7 billion from UK equity funds last month, while property funds suffered from a further outflow of £438 million.

Investors had already pulled more than £3 billion out of all UK funds in June.

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The total outflow from UK-domiciled funds was nearly £5 billion, the heaviest level of redemption in three years.

Some of the money might have been redeployed into assets seen less risky such as government bonds.

By contrast, investors returned to the European market with vigour, putting €15.8 billion into European-based funds, the second-highest level of inflows seen in a one-month period this year, according to the Financial Times.

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MorningStar’s data does not take into account the Bank of England’s decision to cut interest rates to a new historic low of 0.25 per cent and launch another £170 billion of monetary stimulus to stop the economy sliding back into recession in the wake of the UK’s vote to leave the EU.

The London stock market plunged in the wake of the Brexit vote, but the FTSE 100 hit an 11-month high in July after uncertainty abated with the news that Theresa May would become the next prime minister of the UK.

“While the decision by voters in the UK to exit the European Union caused substantial short-term market volatility and has likely been a major factor behind European investors lack of appetite for equity funds, outflows from funds investing in UK equities and bonds have remained unspectacular considering the issue at stake,”Ali Masarwah of MorningStar, said

In July, property funds Columbia Threadneedle, Henderson Global Investors and Canada Life, have been forced to suspend withdrawals after the UK vote sparked fears about falling property valuations.

Greg Jones, managing director at Henderson, told the FT there were signs that fund flows could pick up again.

“In the immediate week post-Brexit [vote] and the first 10 days of July, you had a heightened period of concerns, largely due to a perceived lack of government and [concerns about] the impact of Brexit, so you had a rush from many asset classes. “Since then, it has been almost a return to normality,” he said.