Improving sentiment on European equities has been flagged by analysts at Citi, where they note recent inflows into European equity funds.
The past eight weeks have seen the largest inflows since early 2018, Citi noted.
"However, they are only a small dent compared to c16% of AUM of outflows since 2022."
The latest European inflows have been driven by US-based funds, which are "marginal buyers" of Europe and "important bellwether indicators of sentiment".
Buying has been "mostly passive funds" but with "tentative signs" of a return in demand from actively managed funds, while a third source was noted to be larger cap fund flows.
"Data suggests room for further rotation via the latter two sources," Citi said, noting that European performance, particularly small and mid caps, is "strongly correlated with fund flows".
"In addition, a US domiciled flows revival has historically been a positive signal for further European equity market performance over the next six months."