European ETFs suffer from lack of investor confidence

European exchange-traded funds have been under pressure this year, and the immediate future outlook does not look very promising.

Since the beginning of the year, the Vanguard FTSE Europe Index Fund ETF Shares (NYSEArca: VGK) fell 8.5%, and the iShares MSCI Eurozone ETF (BATS: EZU) fell 11.7%.

ETF investors also shed their exposure to European markets. For example, VGK saw nearly $240 million in outflows, while EZU saw around $150 million in outflows, according to data from the ETF database.

Investor sentiment in the euro zone is now at its lowest level in nearly two years in April, pointing to a potential recession for the euro bloc in the coming quarter, Reuters reports.

The Sentix index for the euro zone, a comprehensive survey of German investors on their view of the markets, fell to -18.0 in April from -7.0 the previous month, touching its lowest level since July 2020. Sentiment index decline was much worse than Reuters poll, which had indicated a reading of -9.2.

Meanwhile, a current conditions index fell to -5.5 from 7.8, reflecting its lowest level since April 2021, while an expectations index fell to -29.8 from -20.8, its lowest level since December 2011.

The drop in investor sentiment in March was widely expected due to the start of the war in Ukraine and the associated uncertainty. The sharp drop in sentiment in April comes as the war drags on and Western countries consider additional sanctions against Russia, further fueling uncertainty.

Sentix warned that the ongoing war and sanctions between Russia and Ukraine, along with additional uncertainties, could push the eurozone economy into recession.

“Investors do not expect the central bank to rush to the rescue with a looser and more expansive monetary policy given the still considerable pace of inflation growth,” Sentix told Reuters.

As sentiment waned globally, Sentix pointed to the more severe decline in the Eurozone, saying: “No region is able to withstand the negative momentum at this time, even the important Asian region already struggling against stagnation”.

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Mary I. Bruner