US stock buybacks increase, but company insiders sell

Easy credit has led to all sorts of distortions in the markets, and an obvious one has been the surge in share buybacks, which have kept stock prices elevated and have boosted earnings per share.

Since the beginning of the month, announced corporate buying (that is, new cash takeovers plus new stock buybacks) have totalled $99.2 billion, which is 6.3 times new offerings of $15.8 billion, according to analysts at TrimTabs Investment Research.

New stock buybacks averaged $3.9 billion daily in earnings season in the US, which was the second-highest volume since the start of the bull market.

But CEOs, CFOs and other company executives aren’t as eager to buy their own companies’ shares with their own money — on the contrary. Insiders have sold $7.8 billion worth of stock in November, or $430 billion daily, much more than $2 billion in September and $3.8 billion in October.

In fact, in November insider selling reached the fastest pace since May 2011, according to TrimTabs’ analysis.

Looking strictly at capital flows in the week that ended on November 25, US equities saw their first inflows in four weeks, worth $1.1 billion, despite the approaching interest rate rise by the Federal Reserve.

Emerging markets saw outflows worth $1.1 billion in their fourth straight week of redemptions, while Japanese stocks saw small outflows, worth $93 million, data from Bank of America Merrill Lynch show.

European equities, which have seen inflows in 26 of the past 28 weeks, saw another $700 million going in — the smallest inflows in eight weeks.

Looking at European equities compared to US equities, only now inflows into European stocks are back to 2007 levels, according to data analysed by Societe Generale.

This seems to suggest there is more room for growth, especially since monetary policy with the US will diverge further, with ECB President Mario Draghi poised to announce an extension of the central bank’s quantitative easing policy this week.

Over the past three months, US equities have been the biggest losers in terms of capital flows, while European equities took in the most money in absolute terms.

US equities have seen the biggest outflows. Source: Societe Generale

US equities have seen the biggest outflows. Source: Societe Generale

As the chart shows, emerging market bonds have also seen big outflows in the past three months; the week that ended on November 25 was no exception.

According to Bank of America Merrill Lynch, emerging market debt funds saw another $700 worth of outflows in that week.

Emerging market bonds were not the only fixed income assets that saw redemptions as the Fed interest rate rise approaches. Investment grade bond funds saw their biggest outflows in eight weeks, worth $2.6 billion, while government/treasury funds saw outflows worth $400 billion.