Bumper US equity gains are reversed

INVESTORS pulled $7.7 billion (R99.4bn) from US equities, the biggest outflows in five weeks, data from Bank of America Merrill Lynch (BAML) showed on Friday, reversing the previous week’s bumper inflows as bears battled with the bulls.

Globally, equities attracted just $500 million in the week to Wednesday as the heavy outflows from US stocks offset $2.1bn of inflows to emerging markets and $1.1bn of inflows to European stocks.

Bonds attracted $5bn globally, with $3.3bn injected into investment grade bonds, $1.1bn into high yield and $1.9bn into emerging market debt funds.

Sentiment While BAML said “irrational sentiment” was confined to tech stocks, corporate bonds and emerging debt, it’s sticking with its view that an Icarus-style climb will be followed by a Humpty Dumpty-like fall in the autumn.

The S&P Global 500 has climbed to record highs, with tech stocks rebounding from recent declines, helped by Amazon buying up-scale grocer Whole Foods Market.

Inflows to tech funds in 2017 are growing at their fastest annualised rate in 15 years – equivalent to 21 percent of assets under management, the bank’s analysts noted.

But some investors are getting cold feet, with $200 million pulled from tech funds in the week to Wednesday, BAML data showed, the first tech outflows in 16 weeks.

BAML cited several signs of Wall Street excess, not least the fact that Facebook’s market cap now exceeds the market cap of MSCI India.

The bank also highlighted a record high global issuance of high yield bonds, while Argentina has just issued a 100-year bond. This is a country “that has spent 33 percent of the past 200 years in default and has defaulted three times in the past 23 years”, BAML said.

BAML sticking with view of Icarus-style climb set to be followed by Humpty Dumpty-like fall

In another late-cycle signal, global investors are long eurozone equities, it added, with the bank’s June fund manager survey showing the third largest overweight on record.

“Central banks, the reason behind high asset prices and low volatility are now in a desperate dilemma,” BAML said.

“(It’s) politically unacceptable for a bubble on Wall Street, but central banks will be tightening into deflation. – Reuters