Markets not panicking yet over trade war threat: BAML

By Marc Jones and Helen Reid

LONDON (Reuters) – The heavy sell-off in financial markets over the last week shows greater caution among investors, but moves into Japan and emerging market stocks suggest no mass panic yet about a full-scale trade war or tech meltdown.

A weekly compilation of fund flow data by Bank of America Merrill Lynch (NYSE:) showed a big $19.9 billion redemption from equity funds, the largest outflow of the year from financials and a record move out of inflation-linked U.S. ‘TIPS’ bonds.

The firm’s Bull & Bear indicator eased further away from a zone of exuberance.

“Risk-off, hint peak yields and credit cracking but no positioning for Occupy Silicon Valley or Trade War,” BAML analysts said.

There are just six “sell” recommendations out of the 250 ratings on the FAAMG stocks (Facebook (NASDAQ:), Apple (NASDAQ:), Amazon (NASDAQ:), Microsoft (NASDAQ:), Google (NASDAQ:)), strategists said.

But they added the potential for major regulation or a “digital levy” was “dangerous” as the sector generates 24 percent of all U.S. stock market profits at the moment.

Stock markets globally have also become increasingly tech-heavy as high-tech firms’ market capitalization balloons.

Tech funds drew modest inflows of $500 million this week despite the scandal over the misuse of some 50 million Facebook users data. Yields on the bonds of investment grade tech firms – yields move inverse to prices – hit the highest in 8 years, however.

The big losses for stocks came from Exchange-traded funds (ETFs) which suffered their second biggest outflows ever, hemorrhaging $18.6 billion.

Safe-haven bonds saw small inflows of $1.8 billion which hinted the market had reached “peak yields”, BAML said, while precious metals, which are another traditionally safety-play, saw “meaty” inflows for the sector of $1.5 billion.

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