Investors piled into bonds this week and racked up the longest stretch of European equity fund outflows in eight years as a wave of caution swept over markets ahead of Britain’s EU referendum, Bank of America Merrill Lynch said on Friday.
European equity funds posted a net outflow in the week to June 8 for the 18th consecutive week, a run not seen since February 2008, before the onslaught of the global financial crisis, BAML said.
In a note titled “Risk-off as Brexit looms”, it said UK equity funds saw redemptions for the 12th week out of the last 14 and overall equity funds posted a $2.6 billion outflow, the 10th outflow of the last 12 weeks.
Britons vote on June 23 whether to remain in or leave the European Union, and polls show it is a close call. On top of that, an extremely weak U.S. employment report for May – the weakest in over five years – cast doubt on the strength of the world’s largest economy and rattled investors.
BlackRock, the world’s largest asset manager, warned on Thursday that markets may be too complacent surround the risk of Brexit, while bond fund giant PIMCO said recently investors should prepare for the “significant” chance of Brexit.
So far this year, global equity funds have posted a net outflow of $106 billion. Of that, $96.6 billion has come out of developed market stocks, and the remainder from emerging markets.
The flip side of the bearish stock market trade was another week of bond buying. Fixed income funds attracted a net $7.9 billion inflow, the largest in nine weeks, BAML said.
With world bond yields hitting record lows this week investors sought for the highest returns possible within the relative safety of bonds. High yield funds drew in $2.6 billion, the biggest inflow in 11 weeks, and emerging market debt pulled in funds for the 14th week out of the last 16.
Investors also sought quality bonds, pouring $4.2 billion into investment grade debt, the 14th straight weekly inflow.