With 63 percent of MSCI’s global index now in a “bear” market, world stocks look oversold but global equity funds nevertheless attracted inflows of $8.5 billion over the past week, Bank of America Merrill Lynch said on Friday.
World stocks are heading for their fifth straight week of losses and look set for their worst month in around seven years. The U.S. S&P500 is a whisker off losing all its gains for the year amid fears that slowing world growth and trade conflicts will erode company profits.
BAML data – based on analysis of numbers from Boston-based flows tracker EPFR Global covering the week to Wednesday – showed that after weeks of equity selling, 1,742 of 2,767 global stocks had fallen 20 percent off peaks, putting them into a so-called bear market.
In emerging markets, the figure was as high as 919 out of 1,150 stocks – 80 percent of the total – while of 1,899 New York stocks, 1,164 or 61 percent, were in the “bear” bracket.
But emerging equity funds took in $2.6 billion, the highest inflow in seven months, while Japanese funds received $5.3 billion.
U.S. shares too absorbed $1.8 billion but Europe has posted outflows in 32 of the past 33 weeks.
BAML said despite big market falls recently and signs of investor buying interest, it was too soon “to flip from bearish to bullish”.
“Big picture explanation – it’s late-cycle and Fed is tightening. Cyclical explanation – peak positioning, peak profits, peak policy stimulus = peak prices in 2018,” the bank’s analysts added.
But noting that 70 percent of world stocks had been in bear territory in 2011, they said if the selloff turned out not to be a harbinger of recession, it could signal an excellent entry point in the coming weeks or months.
But pain continued to be felt on bond markets with a fifth week of outflow, losing $7.2 billion. Investment-grade as well as junk debt lost money, shedding $3.1 billion and $2.9 billion respectively, while emerging bonds saw $1.1 billion outflows.
BAML noted that the annualised near-10 percent loss on U.S. Treasuries and 4 percent on investment grade bonds would be the third-largest since 1970.