Different populations of investors are perceiving stocks completely differently right now, according to an interesting analysis from Citi’s Tobias Levkovich.
While fund flows for U.S. stock mutual funds and ETFs have been negative according to Citi, (even though now less so than before), U.S. corporates, insurance companies, and notably foreigners have been buying up stocks:
After having been burned by two 50%+ declines in the past decade, US stock market investors are understandably concerned that buying into equities is not the best of ideas. As such, money flows continue to exit US-oriented mutual funds, while continuing to buy into international equity funds as seen since the beginning of September based on weekly data (see Figure 1). In addition, ETF flows show a similar pattern (see Figure 2), supporting the notion that investors see better opportunities elsewhere.
In contrast, US corporations and foreigners seem to see opportunity by buying into such pullbacks (see Figures 3 and 4), arguing that different investor groups perceive different realities.
It looks like a classic case of the grass being greener on the other side.
The U.S. has many serious problems, but perhaps Americans forget that it has an enormous amount of strengths other nations can only dream of. One thing that you learn from travelling the world is that every nation has serious long-term problems of one kind or another. There are very few nations that don’t have deep fundamental problems in need of a solution, and while the U.S. has its own, many other nations would gladly trade places in an instant.
(Via Citi, Monday morning musings, Tobias Levkovich, 22 October 2010)