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Lure of record stocks give 'long-only' funds first gain in a year: BAML

Friday, February 17, 2017 - 21:25

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[LONDON] The lure of record high world stock markets gave funds that only bet on rising prices their first weekly inflows in a year, data showed on Friday, while emerging markets saw their best week in six months.

Figures from Bank of America Merrill Lynch (BAML), which track investment flows up until Wednesday, said it was "a sign of rising investor confidence and broadening participation in the equity rally," that has driven global shares up 10 percent since November's US election.

As well as the switch into 'long only' funds, the week also saw the largest inflows into stocks overall in nine weeks (US$17.7 billion) as well as an eighth consecutive week of bond inflows (US$6.7 billion) and fourth week of gains in five for precious metals.

BAML's analysts have been warning for over a month of the risk of an "Icarus" effect, where the wings on which markets have flying recently melt and asset prices spiral downwards.

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But the heat seems bearable for now. A gauge BAML compiles that scores sentiment between 0 and 10 is currently at 6.8, up from two after Britain's vote to leave the EU. They said if the gauge rose to eight it would be a signal to sell.

"We remain long risk until positioning turns dangerously bullish," they said, adding sustained inflows to EM equity, EM debt and high yield bond funds over the next 6-8 weeks as well a fall in cash holdings would trigger a contrarian 'sell' signal.

A break down of the data showed US share funds saw the biggest weekly inflow at US$8.6 billion, which was their largest of the year so far. Emerging market equity funds had the next best performance, with US$2.7 billion pouring in.

For fixed income, high yield bond funds have seen inflows for 11 of past 12 weeks, EM debt funds for six of past seven weeks, while it has been eight straight weeks for investment grade bonds and 14 straight weeks for bank loan funds.

REUTERS

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