Investors plough billions into stocks, bonds and EM assets as risk appetite returns: BAML

By Helen Reid

LONDON (Reuters) - Global investors ploughed money back into stocks and bonds this week as they regained their appetite for risk, boosted by dovish comments from Federal Reserve Chairman Jerome Powell.

Equity funds drew inflows of $6.2 billion, their biggest in 11 weeks, Bank of America Merrill Lynch strategists said on Friday, citing data from EPFR on flows in the week to Jan. 9.

Some $7.2 billion flowed into bond funds, the biggest taking in 39 weeks.

BAML's "Bull/Bear" gauge of investor positioning fell to 1.8 last week, what the strategists called "extreme bear territory", triggering a "buy" signal for equities.

"Initial skepticism on size and duration of rally... quickly morphed into chase via stocks in EM and U.S. but not Europe," BAML strategists wrote, commenting on feedback from clients after the signal.

The gauge crawled back up to 2.2, or "neutral" territory, this week.

In the U.S., growth stocks and large-cap stocks drew the biggest inflows with $2.1 billion and $1.8 billion respectively, while $700 million evaporated from value stocks.

Comments from Powell stressing that the U.S. central bank can be patient in approving any further rate increases have triggered relief among investors who were fretting continued rate rises may be a mistake.

In another sign of healthy risk appetite, emerging market assets were popular with both equity and bond funds drawing in $2.4 billion, while high-yield bond funds received $1.5 billion inflows.

Europe remained unpopular with $100 million outflows. European equity funds have suffered outflows in 43 of the past 44 weeks.

In sectors, investors pulled $600 million from tech stocks and $1.5 billion from financials stocks. They also dumped $1.4 billion of investment-grade bonds.

What could sustain the risk rally is inflows to credit funds, strategists said. These would signal that the Fed "has short-circuited vicious cycle of higher credit spreads and weaker growth", they wrote.

"Green shoots" from Asian or European macroeconomic data would also help support further gains, they added.

European stocks climbed to a one-month high on Friday and eyed their fourth straight day of gains, which would be their longest winning streak since November.

(Reporting by Helen Reid, Editing by Keith Weir)