Investors pull $7.4 billion from stocks funds, largest outflow in 12 weeks: BoFA-ML

Global investors pulled $7.4 billion from equity funds in the week to Wednesday, the largest outflow in around three months, as uncertainty over US and Japanese monetary policy unnerved stocks, Bank of America Merrill Lynch (BofA-ML) said on Friday.

A spike higher in longer-dated bond yields had caused yield curves in the United States (US), Japan and Germany to steepen over the past two weeks, prompting the redemptions from European, US and emerging markets stocks funds.

Although there was little expectation that the US Federal Reserve would raise rates at its Sept 20-21 meeting, investors erred on the side of caution and parked $15.6 billion in money market funds in the run up to the Fed decision.

Investors were also wary ahead of the Bank of Japan's (BoJ) Sept 21 meeting at which it made an abrupt shift in policy, saying it would buy government bonds when necessary to keep 10-year yields at their current levels of around zero per cent.

The BoJ reassured markets that it would continue to buy riskier assets, but some analysts suggested it had overhauled its stimulus policy so it would be easier to exit in future.

"BoJ and Fed 'taper-tantrum' fears may have sparked redemptions in emerging market equity funds and in high yield bond funds," BofA-ML analysts wrote in a note.

A steeper US yield curve strengthens the appeal of risk-free bonds such as US Treasuries over lower quality assets in emerging markets.

Emerging market equities saw their first outflows in 12 weeks, albeit a small $100 million, whilst some $1.2 billion was redeemed from high yield bond funds.

US equity funds lost $7.7 billion, their largest outflows in 12 weeks, whilst European equity funds lost $1.8 billion in a record 33rd straight week of redemptions.

"Europe continues to be the 'vacant' trade (with) no interest since the February 2016 market lows," BofA-ML said. European stocks have fallen 5.3 per cent so far this year.

Japanese equities bucked the trend, attracting $2.4 billion. The Nikkei was up around 7.6 per cent in the third quarter, but is still down almost 12 per cent so far this year.

Overall, bond funds attracted some $3.8 billion, with emerging market debt funds pulling in $1.5 billion in their 12th straight week of inflows. Investment grade bonds attracted some $2.8 billion.