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This amounted to $3.7 billion withdrawn from emerging market equities and bonds, according to data analysed by Bank of America Merrill Lynch.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”.
The indicator that correctly signalled February’s selloff has fallen below the trigger for the Sell signal, but this does not mean the path is clear for those who are tempted to buy stocks now.
It’s hard to find a more bullish start to a year than this one. There were “blockbuster” inflows of capital into stocks, as well as corporate and emerging markets bonds, according to the latest analysis by Bank of America Merrill Lynch.
As investors ponder whether to “sell in May and go away,” strategists say we’ll either see a “summer of stocks,” or a “summer of shocks.”
If anyone was looking for more proof of how central banks’ actions are distorting the markets, here it is: investors are trying to “front-run” the European Central Bank (ECB) – in the words of analysts at Bank of America Merrill Lynch — by buying investment grade bonds.
Investors are extremely bearish, with the start of 2016 shaping out to be the worst ever for many stock markets around the world.
Capital flows showed a “bond massacre” is underway, with the largest weekly outflow from bond funds in 18 months, according to Bank of America Merrill Lynch.
Equities saw their largest inflows in 11 weeks in the week that ended on June 3, with the contrarian “buy” signal triggered in early January still in place, data from Bank of America Merrill Lynch showed.
Equity and high-yield bond funds saw their biggest weekly outflows this year in the week before the UK election.