Nomura Equity Research Analysts Mark Diver, Inigo Fraser-Jenkins, Paul Danis, Gerard Alix Guerrini, Rohit Thombre, Robertas Stancikas and Maureen Hughes analyze equity sentiments in their global quarterly fund flow report of October 24.
Equity mutual fund flow indicators have provided reliable contrarian buy and sell signals to the analysts, as well as served as a complimentary tool for generating an all-encompassing view of the state of the equity markets.
The global situation
Nomura’s global composite equity mutual flow indicator continues to stick in bullish territory since October last year, though it has had its ups and downs.
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It currently stands at 1.07 standard deviations (the left column in the chart above), and is still rather bullish.
Strong inflows into U.S. equity mutual funds indicate a healthy appetite for equity from U.S. investors. The aggregate inflows of $160B during the first three quarters are the highest witnessed for this part of the year since 1996. Nomura’s U.S. flow indicator is currently positioned at 0.63 standard deviations, which may be interpreted as moderately bullish.
Europe has seen a sea change in investor sentiment in the third quarter, and equity funds have seen a surge of inflows showing a revival in bullish sentiment. Investors ploughed $26B into European equity mutual funds in the last 16 weeks, and not surprisingly the sentiment indicator is perched at 2.67 standard deviations currently, a nine year record.
Emerging markets on the back foot
Their global emerging markets indicator reached a highly ‘oversold’ level of -2.18 standard deviations end-June, a beacon to the usually “contrarian at heart” Nomura – and rightly so – because it rebounded from there, with EM equities generating an 8% return over the next three months. It currently stands at a neutral reading.
The sentiment indicator for Japanese equity mutual funds has see-sawed in recent months. It reached a high in the third quarter as investors maintained a relentless pace of fund flow into equities but a tapering-off of these flows has pushed the indicator down into neutral territory – Nomura analysts say it is not the selling but the slowing.
Nomura analysts note that investors are negatively inclined towards emerging markets, but in contrast, equity funds in developed markers appear to be the flavor of the quarter.