Global investors pull back from equity funds amid inflation concerns

By Thomson Reuters Apr 12, 2024 | 12:37 AM

(Reuters) – Global investors dumped equity funds for the second consecutive week in the week ended April 10, amid persistent inflation worries and diminishing expectations for a U.S. Federal Reserve rate cut in June.

Economic data released on Wednesday showed U.S. consumer prices increased more than expected in March, casting further doubt on whether the Federal Reserve will start cutting interest rates in June.

Global equity funds saw an outflow of $2.9 billion during the week, with U.S. and Asian equity funds witnessing outflows worth $2.7 billion and $1.9 billion respectively.

On the other hand, European equity funds collected an inflow of $891 million.

Among sectoral funds, investors withdrew a net $708 million out of the technology sector, breaking a 12-week long buying trend.

By contrast, global equity funds had a robust inflow of $60 billion in the first quarter of the year, driven by investor anticipation of Federal Reserve rate cuts, enhancing the appeal of riskier global equities.

Meanwhile, global bond funds attracted strong inflows, amassing $12.8 billion over the week, spurred by dampened expectations for a U.S. rate cut in the near term.

Mark Haefele, chief investment officer of UBS Global Wealth Management, revised his outlook anticipating the Fed could lower rates by 50 basis points starting in September instead of June.

“With US Treasury 10-year yields at 4.55% by Wednesday’s US equity close, we view now as an attractive time to lock in yields. We retain our preference for quality bonds,” he said.

Medium-term U.S. dollar bonds saw robust inflows of $2 billion, while government short-term U.S. dollar bonds garnered $1.3 billion. Loan participation funds secured $686.6 million, while U.S. dollar municipal funds raised $505 million.

On the other hand, U.S. dollar corporate bond funds experienced outflows totalling $1 billion, and global high-yield dollar bond funds saw a reduction of $473 million.

Global money market funds experienced a $3 billion outflow, following a mammoth $105 billion worth of inflow in the previous week.

In the commodities market, investors sold off precious metal funds worth $524 million, reversing from $691 million in net purchases the previous week. Energy funds, on the other hand, saw a net outflow of $76 million.

Data from 29,583 emerging market(EM) funds revealed a decline in purchases of EM bond funds, with investors buying just $597 million compared to $1.67 billion the previous week. Additionally, they sold $1.7 billion in EM equity funds during the week ending April 10, the largest amount in five weeks.

(Reporting By Patturaja Murugaboopathy and Gaurav Dogra in Bengaluru; Editing by Sonali Paul)