LONDON (Reuters) - Investors pumped record high volumes of cash into emerging markets shares and bonds in the past week, Bank of America Merrill Lynch (BAML) said on Friday amid expectations U.S. monetary policy could lead to a weaker U.S. dollar.
Flows into bonds reached $11.1 billion, the biggest since May 2018, $4.3 billion went into equities and $400 million were pulled out of precious metals, marking the first drop in nine weeks, according to the report based on EPFR data and tracks fund flows from Wednesday to Wednesday.
It was also the biggest week of inflows in three years to high-yield bonds with $4.8 billion and emerging market debt with $4.4 billion.
BAML noted that since Jan. 2, investors have bought $36 billion of bonds and sold $10 billion of equities. Among the risky asset classes, there were buys of $16 billion of emerging market equities and sales of $26 billion and $7 billion of U.S. and European shares respectively.
Investors have piled into emerging market equities and bonds in recent months amid expectations that the U.S. Federal Reserve will not raise interest rates as quickly as previously expected or even no longer tighten its policy.
(Graphic: EM BAML - tmsnrt.rs/2UTVbt9)
In the note, BAML chief investment strategist Michael Hartnett told clients that in his view “the greatest threat to EPS (earnings per share) in the next 3 years is an acceleration of global populism via taxation, regulation & government intervention”.
BAML said its Bull and Bear indicator rose further into neutral territory to 4.4.
The bank also said positions taken by private clients showed no sign of the “irrational exuberance” experienced by markets during the tech bubble, which grew at the end of the century.
“Since 2012, of every $100 invested by private clients, $55 has gone into debt, $35 into equities, and $10 into cash & alternatives,” they wrote, noting no sudden rise in risky assets in portfolios.
(Graphic: BAML flows by asset - tmsnrt.rs/2UI4aNQ)
Reporting by Julien Ponthus; editing by Josephine Mason