Rising investor confidence in a quickening global economic recovery has lifted global equity fund inflows to a decade high.
In the year to date, global investment funds have attracted equity inflows equivalent to 3.4 per cent of their total assets under management – the highest level since 2004, according to figures from Bank of America Merrill Lynch and EPFR Global, the data provider.
In absolute terms, inflows to equity funds have reached a record level of $235bn in the year to date, bolstered by another $6bn of inflows this week.
Last year, investment funds recorded net equity outflows equivalent to 0.8 per cent of their AUM.
Brian Leung, global equities analyst at BoAML, said the figures reflected a “great rotation” from bonds into equities, as investors expect global growth to gather pace and interest rates to rise.
“We are seeing more investors putting their dollars into equities than bonds, and significant differentiation between equity inflows and bond inflows which are the slowest since 2008.”
Investors moving back into European stocks has been one driver of the shift. Over the past three months, inflows to Europe equity funds represented 3.9 per cent of their total AUM, compared with 0.1 per cent in the US – the widest margin since the financial crisis in 2009.
Analysts have long speculated about the timing of an investor switch from bonds – which are generally deemed cautious investments for times of economic uncertainty – to more bullish equities.
However, sceptics have also pointed to relatively strong bond inflows, which stand at $18bn in the year to date.
“This isn’t the great rotation – it’s the great flotation,” said Richard McGuire, head of rates strategy at Rabobank. “All asset classes – risky and safe – are buoyed by the same central bank-sponsored liquidity tide and the inflows into bonds and equities support that.”
US fund managers, in particular, appear to have been making increasingly bullish bets on the eurozone’s sluggish economic recovery speeding up.
Earlier this week, it was revealed that the value of shares in Europe’s ten largest listed banks held by US-based funds has risen 40 per cent since June, to €33bn.
However, the bullish forecasts are not without clouds.
Europe’s main equities markets have this week slipped back from five-year highs as the OECD cut its global growth projections.
The OECD cited an economic slowdown in emerging markets, brinkmanship over the US debt ceiling and concerns over the US Federal Reserve’s tapering for the downgrade.
Its forecast was followed by data showing that the economic fortunes of the eurozone’s two largest economies were diverging – with growth in Germany’s private sector reaching a ten-month high while private sector activity contracted in France.
Mr McGuire said central banks’ liquidity provision – through low interest rates, asset purchases and cheap loans – had become more important to investors than economic fundamentals.
“Liquidity is the dominant force in determining assets valuations across asset classes,” he said. “The OECD cut may be bad for growth but it presages further unconventional stimulus by the world’s central banks.”
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