Equity strategists turn more positive as investors throw in the towel
Equity investors threw in the towel last Tuesday, a possible signal that the worst of the recent spate of selling was now over, according to strategists at Bank of America-Merrill Lynch.
That echoed the opinion of other strategists on Wednesday and Thursday, such as those from Citi or Saxo´s Steen Jakobsen, who also threw their hat in the ring.
Data on daily flows from EPFR revealed $19bn were redeemed from equity funds on 25 August alone – the second largest outflow since 2007.
For the week to 26 August as a whole equity fund outflows were a record (since 2002) $29.5bn.
Healthcare stocks saw $2.5bn of outflows, the most since October 2014.
In parallel, the broker´s Bull&Bear index – which measures investors´ risk aversion on a scale between 0 and 10 - fell to an “extreme” reading of 0.5 – the most bearish reading since January 2012.
Emerging market equities in particular saw a “huge” $22bn in outflows over the past four weeks, bringing Bank of America´s EM Flow Trading Rule “very very close” to issuing a first contrarian 'buy' signal for emerging market equities.
Brazilian and Russian equities saw the largest exodus of client funds.
Nonetheless, the combined $35bn in outflows from equity and high-yield bond funds in the past week was enough to result in a global 'buy' signal, the broker added.
In a note dated 27 August strategists at Citi issued a similar verdict saying that: “this latest 14% sell-off is typical of an ageing bull market. Since 1970, if there is a 10-20% correction sometime during the year, the average global equity gain for the overall year is still 10%.”