This past week, there has been a frenzy of selling of emerging markets assets. The outflows from both stocks and debt in emerging markets reached their highest level since December 2016.
This amounted to $3.7 billion withdrawn from emerging market equities and bonds, according to data analysed by Bank of America Merrill Lynch. These outflows have helped push our old friend, the Bull/Bear indicator developed by BofA Merrill Lynch, to 4.8 — its lowest level since January 2017.
The year-to-date capital flows seem to show a dramatic change in the way investors perceive risk in the stock markets. Emerging market equities, Japan and the financial sector seem to have turned from risky assets into “safe havens”.
Everybody is waiting for Jay Powell, the new Fed Chair, to set out his vision this week. The main question is: will there be a “Powell Put” just as there has been a Greenspan put, a Bernanke put and a Yellen put?
What a week last week was for stock markets, and especially for one particular indicator. The Bank of America Bull/Bear indicator, which the week before last came within a whisker of the Sell signal, last week went above it, for the first time in five years.
The Bank of America Merrill Lynch Bull/Bear indicator last week hit the highest level since its last sell signal, just as U.S. President Donald Trump took credit, once again, for the surge in the stock market.
With central banks remaining in easy monetary policy mode and with signs of a recovery – most notably in the US and the UK but also to some extent in the eurozone – visible, analysts have been betting on stocks rather than bonds, at least until the end of the year.
Rotation between sectors is “extremely frequent” as investors try to get additional gains before the year-end by switching to underperforming sectors, strategists at Libra Investment Services said.