Societe Generale’s latest on global mutual fund and ETF flows comes with a highly bullish note for Europe. SocGen sees Europe hosting $100 billion in inflows ‘soon’. While there is not even a vague timeline on when the massive inflows will be hitting European funds, the gist is that it would be compliments of the taper that is drawing closer in the U.S.

European Equities Asset Flows In Global Equity Funds

Europe gain the most from tapering

Since Europe has been missing out on the fun in the past years, it stands to gain the most from the tapering of $85 billion in bond repurchase in the U.S.   Meanwhile, SocGen’s Arthur Van Slooten and Alain Bokobza point out that both Japan and emerging markets and of course the U.S. have enjoyed asset flows into equities in the past, yet Europe would require $100 billion in new inflows to really show the missing strength in equity performance. The gap in valuation is not just a fact, it is also predictive of bullish times for European equity markets, something that emerging markets enjoyed before taper talk picked up steam. Already, inflows in European funds are rising while the U.S. has seen comparatively slower equity growth.

European Equities Net inflows In US vs. Europe

SocGen points out that some of the signs of recovery in Europe are better than expected in a flash PMI for August: “[this] confirms the exit from recession in H2 after a 0.3% qoq rebound in Q2. We remain of the view that the 2014 growth profile is set to be sluggish,” writes Michel Martinez.

SocGen noted widespread growth across sectors, and manufacturing and services index were both up in the month. Peripheral European countries are likely to show greater recovery compared to countries like France. For substantial improvement in GDP growth and recovery from debt crisis, an improvement in the euro area unemployment figures would be crucial, says Martinez.

Drop in new allocations in Japan and EMs

The drop in new allocations is even more acutely noticeable in Japan and EM equity funds. EMs have plummeted in the past months with heavy outflows, SocGen sees some temporary stability in outflows in this month. The showcase example of very troubled times is India, where the rupee has plunged to all time lows. Emerging markets shook yesterday on the heels of Federal Reserve minutes which pushed the dollar higher against other currencies. In distinct contrast was the situation in Europe, where markets rose almost 1% after losing for three straight days. In EMs, Turkey, India, Malayasia, Thailand were the most hard hit.

Some have said that outflows from emerging markets in droves is a transient issue, one that does not allude to any expansive crisis, says Stephen Schwartz, chief Asia economist for BBVA.  Schwartz, who has background in IMF, has said that there are wide differences between today’s shake-up and the 1997-98 Asian crisis.

European Equities Net inflows In Japan, Emerging Markets