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European equity funds poised for $100 billion inflow bonanza

LONDON, April 25 The stampede out of euro zone equity funds last year is reversing, with up to $100 billion of inflows potentially in the pipeline as investors buy into the improving economy and take heart from the more favourable political landscape.

The first round vote of the French presidential election on Sunday, which put centrist Emmanuel Macron on course for a convincing victory in the second round on May 7, has cemented the positive view of many banks and brokers on the euro zone.

Figures on Tuesday from Thomson Reuters Lipper show that net flows into European mutual funds in Europe in March totaled 65.1 billion euros, the third consecutive monthly inflow and bringing the year-to-date total up to 210.5 billion.

That covers the whole gamut of asset classes, including bond, money market, commodity and equity funds. Estimates vary, but the growing consensus is that flows into the region's equity markets in the coming months are poised to accelerate.

Recent figures suggest the euro zone economy is growing at its fastest rate in years, much faster than the U.S. economy. Wages are rising, unemployment is falling and credit conditions are easing as well.

Equity strategists at Barclays expect European corporate earnings growth of around 15 percent this year compared to 10 percent for the S&P 500.

They note that the outflow from European equity funds last year of around $100 billion, equivalent to around 10 percent of assets under management, should return.

"We expect these outflows to quickly reverse," Barclays equity strategists wrote in a note to clients on Tuesday titled 'Inflows Ahoy!'. "We envisage the coming months to resemble previous periods of heavy inflows into European equities relative to other regions."

Euro zone stocks have risen around 9 percent so far this year, outperforming Wall Street's 6 percent rise.

Analysts at Bank of America Merrill Lynch say the solid economic backdrop points to strong earnings growth this year, perhaps higher than its current estimate of 11 percent.

"European equity fund flows have significant room to recover," Bank of America Merrill Lynch analysts said in a note, referring to the cumulative $103 billion outflow last year.

Analysts at JP Morgan note that euro zone equities have attracted chunky inflows in recent weeks of around 1-3 percent of assets under management. Given the scale of outflow last year, there's room for that to increase more, further widening the earnings growth gap over the United States.

"Flows are turning, and there could be much more to go," they said. (Reporting by Jamie McGeever; editing by Mark Heinrich)

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