Wary US fund investors tiptoe into stocks

27 Aug, 2018

US fund investors crept into stocks as emerging market sentiment deteriorated, betting on a resolution of discord over Turkey and emerging markets, Investment Company Institute (ICI) data for the latest week showed on Wednesday.
Stock mutual funds and exchange-traded funds (ETFs) based in the United States netted $779 million in the week ended August 15, ICI said, as the Turkish lira plunged to an all-time low and investors fretted about possible contagion in emerging markets.
It was the first week of positive sales for the funds in three weeks. Funds focused on international shares took in $767 million during the period, while domestic equity funds collected just $12 million, the trade group's data showed.
During the week, markets punished Turkish President Tayyip Erdogan's refusal to adopt an orthodox response to strong inflation - raising interest rates - by selling lira. While the Turkish market is marginal within global financial markets, stress there could spread as investors whose bets soured in that market sell assets from South Africa to Argentina.
Those countries could struggle to repay debt denominated in dollars as their own currencies weaken. The biggest emerging market, China, is already under pressure from a trade dispute with the United States. Yet hunkering down in domestic stocks may not solve all of an investor's problems.
Lamar Villere, a portfolio manager at St. Denis J. Villere & Co LLC, said the US economy is strong and he is impressed with the financial results of almost exclusively domestic companies his mutual funds hold.
But he is holding a higher level of cash than normal and said there are not many bargains to be found. "We'd like to put some to work, but we don't need to," said Villere, who is based in New Orleans. "There's a lot of cheap stocks that should be cheap and a lot of stocks that are too expensive." During the week, US-based bond funds attracted $1.7 billion, marking a 26th straight week of strong demand. Funds invested in commodities bled $674 million. The dollar's 6 percent gain over the past half-year against its major trading partners have hurt demand for gold, which is priced in the greenback.

Read Comments