Bottom-line: as Flow Show argued last week big capitulation out of stocks into US Treasuries did mark end of Jan/Feb correction for global equities (+6% from lows); ACWI troughed one day after the massive $10bn redemptions from equities last Monday (2/3/14)…
…while this week’s redemptions not quite large enough to trigger contrarian “buy” signal from EM Flow Trading Rule, the record-breaking 16 consecutive weeks of EM equity outflows are very meaningful and help to explain why EEM has participated in the short-covering rally in risk assets (Chart 1).
Need $5-7bn outflows from EM equity funds next week (Chart 2) to confirm further bounce in EM and a period of EM outperformance forthcoming; buy-signal on 6/27/13 followed by 350bps of EEM outperformance in subsequent 3 months.
***Asset Class Flows
- Equities: $11.5bn inflows ($8.7bn via ETF’s)
- Bonds: $4.7bn inflows (Table 1)
- Commodities: 14 straight weeks of redemptions
***Equity Flows
- $3.1n outflows from EM equity funds (16 straight weeks of outflows = longest outflow streak on record
- 4-week outflows from EM equities are 2.3% of AUM = just shy of triggering a contrarian “buy” signal (3.0% is threshold)
- “Buy” signal is still possible if we see $5-7bn redemptions next week. Last buysignal on 6/27/13 followed by 350bps of EEM outperformance in subsequent 3 months
- Europe: $4.0bn inflows (33 straight weeks of inflows)
- US: $7bn inflows (majority via ETF’s)
- Japan: 8 straight weeks of inflows
***Fixed Income Flows
- 20 straight weeks of outflows from EM debt funds (mostly via LDM)
- 6 straight weeks of outflows from TIPS funds
- Healthy $1.6bn inflows to Govt/Tsy funds (after monster inflows last week)
- First inflows to HY bond funds in 3 weeks ($1.8bn)
- 86 straight weeks of inflows to floating-rate debt (Table 2)
- 8 straight weeks of inflows to IG bond funds ($2.5bn)
- 2 straight weeks of MBS inflows