Greece was seen as a ‘buy the dip’ case last week

Capital flows data show that Greece was seen as a “buy the dip” opportunity in Europe last week, before the results of a referendum on the eurozone bailout offer were known.

European equities saw inflows worth $1.7 billion in the week that ended on July 1, their seventh straight week of inflows.

Greece and European Equities

Greece was a “buy-the-dip” case for European equities. Source: Bank of America Merrill Lynch

Emerging markets equities also saw very strong inflows, worth $4.4 billion, for the second straight week, in contrast to the general “risk-off” feeling in the market.

Japanese stocks, which have seen inflows in 18 out of the past 19 weeks, saw inflows last week too, but rather modest at $600 million.

By contrast, U.S. stocks saw $5.9 billion in outflows.

Bonds saw “chunky” outflows of $6.1 billion, adding up to the largest four-week outflows since July 2013, according to a report by Bank of America Merrill Lynch.

Government bond funds saw their longest outflow streak since March 2006, with fears of a Greek default and what this might mean for debt elsewhere taking hold, coupled with worries that an interest rate increase by the Federal Reserve could lead to a generalised rise in yields.

Outflows from government bonds totalled $2.3 billion in the week that ended on July 1.

High-yield bonds saw their fourth week of outflows, with $2.9 billion leaving the asset class.

Emerging market debt funds said goodbye to $200 million, the sixth straight week of outflows.

Investment grade bond funds, which had seen two weeks of redemptions after a 77-week long streak of inflows, saw some $300 million trickling back in.

Surprisingly, the announcement by Puerto Rico’s governor that the commonwealth may not be able to pay its debt had a relatively muted impact on US municipal bonds, with just $500 million in outflows.

The analysts at Bank of America Merrill Lynch are convinced that we have seen the lows in volatility, yields and commodity prices, while the highs in the US dollar and stocks “have yet to be reached.”

With a net 69% of markets in the MSCI ACWI index (which captures large and mid-cap representation across 23 developed markets and 23 emerging markets) trading below their 200-day and 50-day moving averages, global stocks seem to be oversold, the analysts believe.

Their asset allocation is long dollar, volatility and stocks, short bonds and credit, and opportunistic in emerging markets and commodities.

Their Bull and Bear Index was at 3.3 last Thursday, on a scale from 0-10, with 0 being extremely bearish and 10 extremely bullish.