Investors Pull-out Lead to $30 Billion Equity Funds Outflows
Overview Of Outflow Reports
Strategists at Bank of America Merrill Lynch on Friday stated that equity funds experienced their second greatest weekly outflows ever, as approximately $29.7 billion got pulled out of risky assets. Sources claimed that this act was an aftermath of the increasing fears on the likely effects of U.S protectionism.
The EPFR data referred to by BAML revealed that the U.S. equity funds recorded its third largest weekly outflows as it lost $24.2 billion. Sources recorded that it signified the end of the year’s first half characterized by increasing volatility, increasing U.S. interest rates and rising global protectionism.
Reports had it that the recorded U.S. equities outflows were in sharp contrast to that of the previous week which had the U.S. as the only advanced equity region that experienced inflows. Sources claimed that the outflows from emerging market equities and debt funds also increased as investors shed emerging market assets while betting on a hit to emerging economies from a striking rise in the U.S. dollar. Reports further highlighted that about $18 billion was pulled out of emerging market equity and debt funds last month following an outflow of $8 billion in May.
On the global scene, media outlets stated that European stocks also had $3.9 billion pulled out of the region’s funds making it the 16th consecutive week of weekly outflows, while Japan on the other end enjoyed $2.6 billion inflows. Sources claimed that of all the equity sectors, technology showed the highest resilience to trade concerns. The threats to deter the activities of Chinese companies’ investors in the US tech sector, however, affected the stocks.
Tech has reportedly continued to attract the most robust and consistent inflows with $0.8 billion and enjoyed a total inflow of about $19 billion till present day whereas other sector funds experienced outflows of about $9 billion.
Indicators of Contrarian Buying
Away from equity funds to fixed income, funds for investment-grade bonds reportedly enjoyed robust inflows of $2.9 billion as most investors considered it as a safer investment option. Sources claimed that high-yield bond funds last week suffered outflows of $2 billion for the eighth straight week.
It was recorded that the high-yield bond funds were gradually towing the path of suffering outflows of a total $90 billion this year. The outflows were reportedly the result of changes in the global interest rate environment which increased core yields.
The private client allocations of BAML revealed that the bond holdings of the U.S. government rose to a 10-year high. However, it was stated that there was sustained retention of investors’ outlook to assets with high risks as equities was at 61.1% and cash allocations were at a low of 9.9%.
BAML’s model that measured the appetite of investors for risk known as its “Bull and Bear” indicator revealed that investors’ appetite dropped to 2.4 and the fall moved it closer to a level considered to be an indication of contrarian buying.
The strategists further opined that triggers for this situation could include the S&P’s fall lower than 2,665 points coupled with the additional two weeks of high-yield outflows and emerging market outflows.
Similarities With 1998 Asian Crisis
The strategists at BAML pointed out similarities between the prevailing market situation and the 1997-1998 Asian financial crisis that caused the bailout of Long-Term Capital Management. In highlighting indicators of a similar crisis, the strategy team wrote that collapsing EM, Fed tightening, outperforming levered quant funds, flattening yield curve and U.S. decoupling were all pointing to the fact that the scenario of 1998 could happen again.
The team stated that banks, oils and yield curves were the most prominent summer tells for a repeat of what occurred in 1998.
The strategists also added that the continued pressure on the Chinese currency that had June as its worst month yet could also contribute to the triggering of events, while also serving as an unwind or the long U.S. dollar and long U.S. tech.
The strategists also noted that the insensitivity of the current interest rate imposed and the fact that the central banks had failed to do something about the revival of risk assets that had artificially low bond yields could also be red lights that there was an impending danger.
More in Global Markets
Parents Are Reportedly Giving Early Money Lessons to Their Kids
Gen X and Millennial Parents A Study recently released by Capital Group revealed that parents nowadays are having talks with their...July 2, 2018
Trade Uncertainty Reportedly Causes European Stock Markets to Finish Lower
Europeans Markets Finish Lower Monday afternoon had European markets closing lower howbeit by a slightly slim margin. The day trading witnessed...July 2, 2018
Analysts Predict The Next Trillion-Dollar Industries Amazon Will Disrupt
Trillion Dollar Industries An analyst at D.A. Davidson has predicted that travel and gas stations may be the next trillion dollar...July 2, 2018
Reasons Why Some People Never Retire
Changing Trends In recent times, it has become commonplace for baby boomers to keep working even into their 80s. Different reasons...July 2, 2018
Report by Goldman Sachs Suggest Further Fall In Bitcoin Prices
Cryptocurrency Mania A report published by Goldman Sachs investment group on Friday indicates that the investment bank isn’t optimistic concerning the...July 2, 2018
Common Financial Mistakes to Avoid
Financial mistakes lead to substantial financial regrets. These mistakes can come in the form of the actions one takes or the...July 2, 2018
How to Choose the Best Life Insurance Coverage For the Disabled
Securing Financial Protection A primary reason why people get life insurance is so that after the demise of a loved one,...July 2, 2018
European Cities where Retirees Can Live on $35,000 or Less Annually
Planning For Retirement While planning for your retirement, living well at a minimal cost remains a constant consideration. Thus, if...July 2, 2018
Why You Should Regularly Check Your Credit Score
False Assumptions An online survey recently conducted on over 2,000 credit card holders revealed that roughly one out of five credit...July 2, 2018