By Sam Forgione
NEW YORK Dec 27 Investors poured $2.6 billion
into stock funds worldwide in the week ended Wednesday in
expectations the rally in U.S. stocks would continue into next
year, data from fund-tracking firm EPFR Global showed on Friday.
The inflows into stock funds in the week ended Dec. 25
reversed the previous week's outflows of $3.4 billion and marked
the strongest demand in four weeks, according to the data
compiled by Reuters from EPFR Global and past Bank of America
Merrill Lynch Global Research reports. Funds holding European
and U.S. shares saw significant demand.
While investors committed cash to stock funds, they pulled
$2.5 billion out of bond funds, marking the fourth straight week
of outflows from fixed-income funds, the data from EPFR Global
and Bank of America Merrill Lynch showed. They also pulled money
from emerging markets stock and bond funds.
The inflows came in the wake of the Federal Reserve's
announcement on Dec. 18 that it would cut its monthly purchases
of Treasuries and agency mortgages by $10 billion to $75 billion
starting in January, a move that surprised investors.
The Fed's bond-buying stimulus has kept interest rates low,
which has fueled demand for stocks and helped boost the Standard
& Poor's 500 over 29 percent this year through Thursday.
Funds that mainly hold U.S. stocks attracted $1 billion of
the inflows into stock funds overall during the reporting
period, reversing outflows over the previous week, according to
the data from EPFR Global and Bank of America Merrill Lynch.
European stock funds raked in $2.4 billion in new cash,
marking the 26th straight week of new demand for the funds.
The FTSEurofirst 300 index of top European shares
booked its biggest rise in eight months on Dec. 20. Many
investors have looked to European stocks in recent months on
improving prospects in the region.
The S&P 500 hit record highs and rose 1.3 percent over the
latest week, while MSCI's world equity index
rose 1.5 percent. The U.S. stock market was closed on Wednesday
for Christmas holiday and trading ended early on Tuesday.
The Fed's decision to cut its bond purchases reinforced
investors' belief that the U.S. economy is improving, said Tim
Ghriskey, chief investment officer of Solaris Group in Bedford
Hills, New York.
Strong U.S. data on economic growth, manufacturing and
consumer spending reinforced expectations that the rally in U.S.
stocks could continue into next year, Ghriskey said.
Japanese stock funds attracted $202 million in new cash over
the reporting period, the first inflows in three weeks, EPFR
Global data showed. Japan's Nikkei average hit a
six-year closing high on Dec. 25.
Investors continued to pull cash out of funds that hold
emerging market stocks, however, with the latest week's $1.3
billion in withdrawals marking the ninth straight week of
outflows from the funds, according to EPFR Global and Bank of
America Merrill Lynch data.
Analysts and investors have said that the Fed's bond-buying
lifted emerging market stocks this year, and that the stocks
have become more vulnerable as the Fed scales back stimulus.
Investors pulled cash out of bond funds over the weekly
period, meanwhile, on expectations that interest rates will rise
as the Fed unwinds its bond-buying program. Of the $2.5 billion
in outflows from bond funds, $1 billion came from funds that
hold U.S. bonds, the data from EPFR Global showed.
Selling pressure caused the yield on the benchmark 10-year
U.S. Treasury to rise about 10 basis points to 2.98 percent by
the close of trading on Dec. 24. The bond market closed at 2
p.m. (1900 GMT) on Tuesday and was closed on Wednesday.
The Fed's pullback also hit emerging market bond funds,
which had outflows of $1.3 billion over the weekly period, EPFR
Global data showed.