By Patturaja Murugaboopathy

(Reuters.) – European equity funds experienced their first monthly withdrawal in February since 2012, as both the Russia-Ukraine war and rising energy costs hampered profit growth prospects.

Refinitiv Lipper reported that European equity funds saw a $27 billion outflow last month. It was their first outflow in March 2020.

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The data revealed that U.S. equity fund received $20 billion and Asian equity funds $8.7 billion respectively.

This divergence highlights the reluctance of investors to expose themselves to markets that are vulnerable due to ongoing conflict, and because Europe has stronger trade links to Russia and Ukraine.

Analysts anticipate that rising inflation rates will drive up input costs of companies and decrease profit margins.

Inflation in the Eurozone soared to 7.5% in March. This was due to fuel prices and record-breaking wars in Ukraine.

Analyst at Bernstein Sarah McCarthy stated in a note that the growth outlook was slowing.

When the economy is at its best, it’s easy to raise prices in order to compensate for increases in input costs. It becomes more challenging to do this in slowdowns.

According to the data, Zwitserleven duurzaam index Aandelenfonds Europe had outflows of $912 million while BlackRock (NYSE) European Dynamic A Acc suffered outflows totaling $503 million and $468 millions respectively.

This month Morgan Stanley (NYSE) Reduced its Europe earnings per share growth forecast from 10% to 3%.

According to the brokerage, “With real GDP growth falling below inflation in 2022,” margins may fall by about 100 basis points.

Refinitiv data indicates that Euro zone’s earnings of large and medium-sized companies are forecast to rise 4.4% in 2014. This compares to 10.3% growth for American firms and Asia’s 15.3%.

Europe has seen a 6% decline in its GDP so far this fiscal year.

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Refinitiv data shows that MSCI Europe’s 12-month forward price-to-earnings rate was 13.9. That’s roughly a 20% discount on the 17.4.