Seeking safety, investors drop stocks and pile into bonds

London

INVESTORS piled into bonds in the past week and pulled billions of dollars from US and European stocks as they sought safety in assets seen as less risky in times of economic uncertainty, Bank of America Merrill Lynch (BAML) said on Friday.

The bank's report, based on EPFR data which tracks fund flows from Wednesday to Wednesday, showed that investors yanked US$15 billion from equities in the week to Jan 30, the tenth outflow of the past 11 weeks.

Some US$15.2 billion was pulled from US stocks and US$3.7 billion from Europe, marking the 46th weekly outflow of the past 47 weeks from the region.

In turn, bonds recorded inflows of US$9.4 billion, their biggest since January last year. Investors pumped US$4.7 billion into investment-grade bonds, the most since February last year, the data showed.

Japan and emerging market equities continued to see inflows, with US$4.4 billion and US$1.3 billion respectively.

Investors have pounced on emerging market equities and bonds in recent months amid expectations that the US Federal Reserve will not raise interest rates as quickly as previously expected.

Cumulative flows in EM debt and equity hit US$369 billion last week, just US$2 billion shy of the record last January, the data shows.

Investors are no longer extremely bearish, with the Bull & Bear indicator at 3.3, its highest since October and up from 2.8 previously, but investor positioning suggests the risk asset rally can continue, BAML said.

For instance, the private client Treasury Bill allocation is at a record high, it said.

The data comes after big swings in stock markets in recent months - the S&P 500 just closed out its best January since 1987 after suffering its worst December in almost 90 years - as investors fret about the US-China trade dispute, US interest rate policy and slowing global economic growth. REUTERS