Investors continued to trim risk exposure in the past week, dumping stocks and putting money to work in bonds, Bank of America Merrill Lynch (BAML) said on Friday, warning of a possible “summer of shocks” ahead.
Net outflows from equity funds slowed to $6 billion but posted their fifth week of losses since mid-March. Meanwhile bond funds, having seen inflows in eight out of the past nine weeks, garnered $5.3 billion in the week to April 27th, BAML said in its weekly note.
Money market funds drew $1.4 billion of inflows, though total outflows over the past nine weeks amounted to $118 billion, while investors put $300 million toward precious metal funds, which have seen inflows in 15 out of the past 16 weeks.
Across equity funds, U.S. stocks reaped their first inflows in three weeks, adding $1.6 billion. Funds exposed to Europe recorded the largest outflow since October 2014, bleeding $4.8 billion, and Japan funds saw their seventh straight week of losses, seeing $2.5 billion flee.
In fixed income, investors still reeling from the recent bond market sell-off trimmed exposure to government and Treasury funds for the tenth straight week, with net outflows rising by a third week-on-week to $1.2 billion.
U.S. municipal bond funds extended their winning streak to 32 weeks, adding $1.3 billion for the biggest weekly gains since January 2013. Emerging bond inflows slowed but still took in $300 million for their tenth week of gains, reflecting the bullish sentiment toward emerging markets.
Inflows to investment-grade bond vehicles picked up further, adding $3.9 billion, while high-yield ones added $0.5 billion.
BAML Chief Investment Strategist Michael Hartnett said it was possible investors would re-enter equity markets but he saw a “summer of shocks” as more plausible.
“(With) H1 policy panic over and June Fed hike, a yen surge, China, ISM and Brexit are all risks,” he wrote.
ISM is a key gauge of U.S. business activity.
The bank’s “Bull & Bear” index ticked up to 5.0 from 4.1 week-on-week, its highest in 11 months and reflecting markets becoming gradually more bullish in recent months. A lower reading on the 1 to 10 scale reflects investor bearishness, and a higher reading bullishness.