Investors Rush To Buy European Stocks And Emerging Market Debt After Macron Win

Investors Rush To Buy European Stocks And Emerging Market Debt After Macron Win

Following the French election, investors plowed a record amount of cash into European equities according to Bank of America Merrill Lynch’s weekly flow show report. In what can only be described as a complete 180 by BAML investors, $6.1 billion flowed into European equities following Macron’s win, the largest weekly flow for European stocks on record. As shown in the chart below, the only other time flows came close to reaching this level was the beginning of 2015 when the ECB began its quantitative easing program. Emerging Market debt is also hot again with investors.

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BoA: Emerging Market Debt and European stocks are hot

As investors rushed to buy into Europe, according to Bank of America’s data of a fled Japan. Japan equity funds recorded the largest outflow in 30 weeks with $2.7 billion moving away from the country. Chief Investment Strategist Michael Hartnett argues that these outflows signal a contrarian buy for Japanese thanks to depressed investor sentiment towards the country.

Overall, for the week of 5/10/17, European equities were the largest winners. For the second straight week, US equities saw outflows of $2.4 billion while bond funds attracted $4.4 billion. High yield bond funds were the only fixed-income class to see outflows for the third consecutive week with $1.3 billion leaving the asset class. Investment-grade bond funds attracted $3.6 billion stretching their winning streak to 20 weeks.

Emerging market debt and equity funds both attracted inflows. Emerging market equity flows totaled $2.6 billion, the largest inflows in seven weeks of positive flows. Emerging market debt funds attracted $1.1 billion the 15th straight week of positive flows.

Overall, equities attracted $8.8 billion of inflows, and for the first time in a long time, mutual funds actually attracted inflows of $0.9 billion. For the past 80 weeks, investors have consistently withdrawn funds from actively managed mutual funds and rotated into passive ETFs.

EM equity puts too cheap given near-record wide gap: BAML

Still, this positive flow is relatively insignificant in the grand scheme of things with $48.1 billion of outflows from active mutual funds so far this year. For some comparison, passive equity funds have attracted $174.9 billion year-to-date 7.9% of total equity ETF industry assets under management.

While equity ETFs might be winning the battle for investor cash compared to mutual funds, even these fashionable instruments have not been able to convince investors that equities are better than bonds over the past ten years. Indeed, according to Bank of America’s data, over the past ten years, bond funds have attracted $1.6 trillion compared to just $0.2 trillion for equity funds. This trend seems to have slowed this year with equity inflows of $126.8 billion keeping pace with bond inflows of $144.1 billion year-to-date.BoA: Investors Rush To Buy Europe And Emerging Market Debt After Macron Win BoA: Investors Rush To Buy Europe And Emerging Market Debt After Macron Win

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