Investors Decide UK Isn't Part of "Europe"

♠ Posted by Emmanuel in at 6/06/2017 11:12:00 AM
There are several ways to signify membership in a particular geographical region. The most straightforward one is that you share [duh] roughly the same real-estate on the world map. Others may, of course, include being part of a regional cooperation organization--or any number of such organizations. Into this picture we have this strange bastard entity called the "United Kingdom." Not only is it physically detached from continental Europe, but it has also chosen to forsake many of the signature institutions of Europe.

The UK is not part of the Schengen Agreement for continent-wide travel. The UK has never been part of the Eurozone using the Euro as a common currency. Now, it has also declared that it doesn't want to be part of the European Union. While geography and international institutional cooperation may be significant markers of belonging, what are subtler manifestations? How about investors--undoubtedly important stakeholders--treating you as part of a particular region? As the UK leaders act like the Trump-o-philes of Europe with their isolationist leanings, folks are starting to get the message that the UK really *isn't* European:
Global investors are distinguishing between the UK and the rest of Europe as part of a fundamental reassessment of what investing in the region means, reflecting growing enthusiasm for Europe's broad economic prospects and nervousness about thorny and possibly protracted Brexit negotiations.
That has meant the forceful emergence this year of "Europe ex-UK" as an investment class, as offshore investors actively seek to avoid lumping British stocks into any Europe-bound investments.
Like their namesake, these Euro-Trumps are being shunned, bigly:
With Brexit, and the future of many of those links uncertain, there is a growing realization that the UK and EU financial markets will develop their own nuances and drivers which require old assumptions to be challenged.

Data from Lipper - a Thomson Reuters company - on year-to-date flows in and out of exchange traded funds (ETF), a proxy for broader investments, shows that this is well under way.

ETFs that track European stocks excluding the UK are the ones seeing the strongest demand and the largest of these, the iShares MSCI Eurozone ETF, has seen a net $3.9 billion pumped into it this year.
Meanwhile, regional ETFs which include UK stocks have bled money, suggesting investors looking only for European exposure are actively seeking to avoid British stocks.

"Europe ex-UK" is not a new investment concept, and the size and scope of products available to investors is small compared to those available on a pan-European basis.
It's another sign of continental drift for the isolationist UK. With fortunes looking up on the continent, it may be a case of "See ya, and the EU wouldn't want to be ya." It's not as if the UK can do anything that continental Europeans cannot by offering something unique. Go ask the investor class.