In ‘world of two halves’ funds buy U.S. stocks, exit Europe: BAML

By Sujata Rao

LONDON (Reuters) – Global investors pulled more cash out of European and emerging markets in the past week, opting instead for U.S. stocks, as robust economic growth encouraged a sixth straight week of inflows, Bank of America Merrill Lynch (NYSE:) said on Friday.

The bank’s data, which tracks fund flows from Wednesday to Wednesday, references a period when investors braced for the U.S. Federal Reserve’s second interest rate rise of 2018 and awaited signals from the European Central Bank on its stimulus exit path. The ECB said on Thursday it would end bond buying this year but not raise rates until the second half of 2019.

BAML said the week had seen $5.6 billion enter global equity funds, with U.S. stocks accounting for a $10.3 billion inflow and European equities losing $2.5 billion. Emerging stocks funds shed $1.3 billion and Japan suffered $400 million outflows.

“It’s a game and world of two halves,” BAML analysts wrote in a reference to the football World Cup which started this week in Russia.

“U.S. decoupling from the rest of the world accelerating,” BAML said, noting that in the past six weeks $29 billion had flowed to U.S. stocks, contrasting with losses of $13 billion from European markets.

Emerging debt and equity redemptions now amount to $12 billion over the past seven weeks, the bank added.

“The bigger picture is global QE is ending, with the United States the sole growth story.”

Moreover, U.S. equities now stand just 3 percent off all-time highs, while euro zone and Chinese stocks languish around 30 percent off peaks, the note said.

European equities have shed nearly $20 billion so far this year, fund flows data shows, and a pan-European equity index is barely in positive territory, hit by signs of a growth slowdown and also fears the United States will impose large import tariffs on goods such as autos and steel.

U.S. markets meanwhile are benefiting from large tax cuts as well as the continued rally in technology shares.

On bond markets, investors bought higher quality investment-grade debt for the fourth week in a row, putting in $900 million, while junk-rated debt witnessed their sixth week of outflows.

Emerging debt funds suffered their eighth straight loss-making week, shedding $1.3 billion.

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