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According to Research Analyst Gareth Berry at UBS, "We expect that the theme of capital flight out of the Eurozone will continue to run for some time in the wake of the Cyprus bailout." The immediate focus, of course, is on deposit flight but capital controls will be expected to do their job for now. Of course, the images of bank runs and deposit flight are powerful, but we expect capital flight in the form of investment outflows is even more pernicious. Deposit flight exposes funding gaps on a banking-sector level, but capital outflows, be they via portfolio flows or FDI reversals, tend to expose the funding gaps of an entire nation, a fact that emerging markets can strongly attest to. As timely data is still rather difficult to come by, we use our Equity Flow monitor from last week to see if asset managers are now liquidating underlying investments in the Eurozone, especially taking into account that our FX Flow Monitor has been showing such trends for several weeks.

Unsurprisingly, the Eurozone suffered the most out of all G10 markets we track, but the distribution of selling was even more troubling. Eurozone-based clients actually registered flat net flow - i.e. repatriation back to the Eurozone offsets their overseas interest. However, for non-Eurozone based investors it was one way: the US and UK both registered strong inflows last week but almost all of the buying came from their own clients leaving the Eurozone. "If past history is anything to go by, the Eurozone's funding gap may widen further and it's the real economy, beyond the banks, that will suffer." Berry warns.