Global bond funds had another week of huge inflows as central banks stuck to their dovish tone, while outflows from equities slowed to a trickle, Bank of America Merrill Lynch strategists said on Friday. Investors ploughed $9.6 billion into bond funds, the 17th straight week of inflows as they chased a rally driven by a pause in monetary policy tightening, while equity funds had a seventh week of outflows, though small at $300 million.
US stocks hit record highs this week, helped by strong results from Apple. Wall Street's recovery from a sharp end-2018 selloff has been swift: the BAML strategists said it has taken just 215 days for the S&P 500 to surpass its record. A strong global equity market rally this year, triggered by the US Federal Reserve rowing back plans to raise interest rates, has added $10.7 trillion to market capitalisation, they said, and caught many by surprise.
BAML strategists see it continuing. "We expect monetary policy to remain easy and for dips to be bought," they wrote. The Fed on Wednesday held rates steady and signalled little appetite for adjusting them any time soon. BAML's "Bull & Bear" indicator of investor sentiment climbed to 5.1, its highest level since February.
The mood in Europe remained bearish, however. European equity funds have seen outflows in 58 of the past 60 weeks, including $4 billion in the week to May 1, the strategists said, citing data from flow tracking specialist EPFR. US equity funds had inflows of $2.2 billion while Japanese and emerging stocks saw small outflows of $300 million and $100 million respectively.
Investors' search for high-yielding assets took them into emerging market (EM) debt funds which had their biggest inflows in 12 weeks, pulling in $2.4 billion. Overall, flows into investment-grade funds and EM funds (both debt and equity) are at cumulative all-time highs, BAML strategists said, offering further evidence of how strong the "yield" theme has been over the past decade.