Two Puzzles: US equity flows and Chinese data

International investors have bought four times as many Euro-area equities as US equities over the past year, despite similar equity market performances and equity valuations moving against euro stocks (vs. US stocks). This surge in buying is not a catch-up to excess selling during the various euro crises in recent years since international investors bought 40% more Euro equities between 2009 and summer 2012 – the period encompassing the most acute euro crises. Looking further back, we find that international investors have been cumulatively buying more Euro-area equities since 2002. So it does not appear that investors are underweight Euro-area; if anything, they appear underweight US and Japan (see first chart). Therefore with this backdrop and with the gap between foreign buying of Euro equities and US equities at record highs, we remain comfortable with expecting a (relative) pick-up in US equity inflows and hence additional support for dollar strength.