Investors have dumped equities at a record pace in the days since major central banks signaled they won’t be deterred in their fight against inflation — a fitting end to the worst year for world stocks since the global financial crisis.
(Bloomberg) — Investors have dumped equities at a record pace in the days since major central banks signaled they won’t be deterred in their fight against inflation — a fitting end to the worst year for world stocks since the global financial crisis.
Equity funds were hit by outflows of almost $42 billion — the highest ever — in a week when the Federal Reserve, the European Central Bank and the Bank of Japan all sounded staunchly hawkish in their policy outlook for next year, squashing bets of an imminent return to an era of cheap money. Typical year-end trends contributed to the selling, strategists said. The figures from Bank of America Corp., Citigroup Inc. and Barclays Plc — all citing EPFR Global data — show investors also pulled out of bonds and cash funds in the week through Dec. 21.
For the year, equities still reflect net inflows of $166.5 billion, suggesting investors haven’t yet fully capitulated and that 2023 could bring further declines. Bond funds, by comparison, recorded outflows of $257 billion, and Bank of America strategist Michael Hartnett has said he expects the asset class to outperform stocks in the first half of next year.
Read More: BofA’s Hartnett Says 60/40 Portfolios Set for Comeback Next Year
A year-end bounce in US stocks has already come to a screeching halt as stronger-than-expected data this week lent support to the Fed’s view that the economy can bear further policy tightening without tipping into a recession. The benchmark index is now firmly in a downtrend that capped three bear-market rallies this year and on track for its steepest annual decline since 2008.
“With many issues of 2022 still unresolved, investors should brace themselves for a bumpy start to 2023,” Barclays strategist Emmanuel Cau wrote in a note. “The inflation versus recession debate, earnings outlook, China reopening and the Ukraine conflict will likely continue to dominate the market agenda.”
In the UK, equity funds racked up their biggest ever drawdown in 2022 at $26.3 billion, the EPFR data showed. With redemptions for 45 straight weeks, European funds are on course for their worst year ever aside from 2016.
By style, US growth, small cap and large cap all posted weekly outflows, with a record $17.2 billion leaving value funds.
–With assistance from Michael Msika and Jan-Patrick Barnert.
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