U.S. investors are withdrawing billions of dollars from European stocks as signs of a stalled economic recovery, compounded by the Ukraine crisis, halt the past year’s scramble to buy back into the region.

    The switch out of Europe into emerging markets or the United States is not yet a wholesale exit, with several large asset managers trimming rather than axing their exposures to the region — a far cry from the panic of 2011 at the height of the eurozone debt crisis.

    But the rapid pace of outflows from easy-to-trade vehicles such as exchange-traded funds, often seen in the past as an indicator of future investor sentiment, may derail Europe’s two-year equity rally, with investors growing impatient for the European Central Bank (ECB) to act more radically to spur growth.

    Lipper data for 106 U.S.-domiciled funds invested in European equities shows their longest streak of consecutive weekly outflows since 2011 in the past nine weeks.

    Over that period, investors withdrew US$3.25 billion from the funds’ nearly US$50 billion assets, mostly held in ETFs.

    “People had been expecting a quicker recovery in Europe and now are realizing it’s not happening,” said Dan Morris, global investment strategist at New York-based TIAA-CREF Asset Management, which manages assets worth US$613 billion.

    “Then you add on top of that what’s going on in Russia and Ukraine and people are saying: ‘There have got to be better opportunities in other parts of the world.’”

    As investors pulled out of European equities, the Lipper data showed U.S. funds invested in emerging markets recorded inflows of US$5.7 billion over the same period, taking their total assets to US$289 billion.

    Morris said he now prefers shares in emerging markets to European stocks in light of the eurozone’s enervated economy and valuations which no longer look appealing.

    The Europe-focused funds had attracted inflows over a year when U.S. investors were betting on economic revival in the eurozone, where stock valuations were cheaper and the market was underpinned by the ECB’s pledge to save the euro.

    Now the focus is shifting to high unemployment, sluggish reforms and tit-for-tat sanctions imposed by the West and Russia, the EU’s second-largest source of imports and fourth-largest export market.

    “U.S. bought Europe big last year because of ECB, reform and value,” said Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch in New York. “All three are less compelling today.”(SD-Agencies)