Investors globally continued to ditch stocks last week, creating a seven-week run in demonstrating a preference to invest in fixed income assets instead.
According to research from Kenneth Chan, a quantitative strategist at Jefferies in Hong Kong, global equity funds recorded net outflows of US$8.9 billion, taking cumulative outflows over the past seven weeks to US$58.37 billion.
“Entering the last week of May and approaching major central bank meetings in June, investors remained cautious towards global equities,” said Chan.
As shown in the chart below, supplied by Jefferies, having seen fund inflows from the middle of 2015, investors have turned cold on stocks since the beginning of April.
Over the week Chan notes that investors were indiscriminate in their selling, with outflow broad-based whether measured geographically or by sector.
“Geographically, US equities witnessed a marginal outflow of US$1.7 billion,” says Chan, noting that “investors withdrew more significantly from large caps and invested into small caps”.
It was a similar story for Europe, with outflows continuing for the 13th week in succession, somewhat ominously the longest stretch seen since 2007.
In Europe, the US$3.2 billion withdrawal extended its current outflow run to 13 weeks, the longest since 2007,” says Chan. “While equity outflows remained broad-based by country, Germany (-US$797mn) and UK (-US$733mn) topped the region in net outflow terms for the week.”
“The former also topped in net outflow terms year-to-date,” he added.
Fitting with the bullish price action in financial stocks, something that coincided with a lift in expectations for a near-term US interest rate hike, investors were net buyers for a third consecutive week.
Though funds continued to flow out of stocks, it was a very different story for bond funds which saw net inflows for an eighth straight week.
“Global bond funds extended their current inflow streak to eight weeks, with an inflow of US$2.6 billion of late,” says Chan.
“Government bonds recorded a rare return of inflow while corporate bonds continued to attract investors’ interest.”
On the other hand, Chan notes that “high yield bonds saw a net withdrawal of US$2.1 billion, the heaviest in 15 weeks” citing “the fact that more than 70 corporate borrowers have defaulted globally so far this year, the fastest pace since 2009”.
This “has put high yield bonds under pressure again for the past four weeks”, he said.