Brexit has created inequality on Wall Street; that’s how analysts at Bank of America sum up the asset flows since June 24.
Brexit has created inequality
Inequality has been created between bond investors and equity investors as cash sitting on the sidelines has flowed into bonds during the past two weeks — something Bank of America calls the fresh “irrational upside” in government & corporate bonds, and high quality & high yield stocks. Also, gold and silver prices have soared as investors hedge against future populist policies.
On the other hand, financial equities remain untouchable. Global bank stocks are down 30% since the ECB took deposit rate into negative territory on June 14.
Bank of America’s weekly flows data is full of records. Precious metals saw inflows of $4.1 billion, the largest on record (data goes back to 2005) there have been inflows in 24 of the past 26 weeks. Emerging market debt also saw record inflows of $3.4 billion last week (the data goes back to 2004).
Overall, bonds reported $14.4 billion of inflows, the largest since February 2015. High-yield bond inflows totalled $2.6 billion, the highest in 16 weeks and government/Treasury inflows amounted to $3.3 billion the largest in 24 weeks.
Including last week’s data there now been 18 straight weeks of inflows into investment-grade bonds, 42 straight weeks of inflows into muni bonds and in 19 of the past 21 weeks there have been inflows in TIPS.
While and inflows are breaking records, investors are fleeing from equities in every region apart from the US. Specifically, last week UK equity funds saw $1.1 billion of outflows, the largest since January 2015. There have been outflows from UK equity funds in the 10 of the past 11 weeks. European equities have seen outflows of $4.4 billion in the last week, extending the number of weeks where outflows have been reported to 22.
US equities saw inflows of $3.3 billion; emerging market equities reported a tiny $0.1 billion inflow and Japan saw an almost non-existent inflow of $83 million. The US total was actually the largest reported inflow to the North American market in 13 weeks.
As a percentage of assets under management weekly flows into gold and silver funds were just under 3%, flows into EM debt funds amounted to 1.3% of AUM. Government/Treasury inflows totalled just under 1% of AUM.
Some other interesting tidbits from BoAs Flow Show report:
- 659: number of global rate cuts since Lehman bankruptcy
- $12.9tn: outstanding amount of bonds currently yielding <0% (= 29% of total)
- $24.6tn: outstanding amount of global central bank holdings of financial assets
- -1.1%: the most negative bond yield in the world (3-year Swiss government bond)
- 107 years: time it takes to double your savings in 1-year US deposit account
- 1387 years: time it takes to double your savings in 1-year German deposit account
- 6932 years: time it takes to double your savings in 1-year Japanese deposit account
- 7%: level of investor cash as % AUM (Jul’16 FMS), highest since Nov’01
- 21,084,000: current number of unemployed men and women in Europe
- 25%: annualized YTD return from global government bonds in 2016, a 30-year high