The investor stampede from funds that invest in global equities accelerated in the latest week, with $23.2bn of withdrawals, the biggest outflow since August 2019, as the economic impact of the spreading coronavirus intensified.
Investors pulled $19.4bn from global equity mutual funds and exchange traded funds in the week to Wednesday, according to EPFR Global data. Funds that invest in European equities had $2.9bn of outflows, up from $16m the week prior, marking the worst weekly outflow since July 2016.
“Although cases have been starting to appear in the US, the spread of the coronavirus has been more advanced in Europe, most notably in Italy,” said Martin Fridson, chief investment officer at Lehmann Livian Fridson Advisors.
Italy is to inject €3.6bn into its economy in an attempt to mitigate the impact of the largest outbreak of coronavirus in Europe.
Funds invested in European bonds also had a rough week.
Investors pulled $2.6bn in the latest week, up from $9m of withdrawals the previous week, the worst outflows since November 2019 and the first since December 2019. Funds invested in global high-yield junk debt suffered $7.9bn of outflows in the latest week, up from $6.8bn the prior week, the worst outflow since February 2018.
In the US, funds that invested in high-yield junk bonds saw a deceleration of selling from investors. Those funds posted $2.9bn of outflows in the latest week, down from $6.7bn in the previous week, according to EPFR data.
“One factor is that the investment grade and high-yield US corporate index both became steadily more expensive relative to their European counterparts since early 2019,” Mr Fridson said. “So in relative valuation terms, Europe was particularly vulnerable.”
Investor withdrawals also eased in funds that invest in US equities, with $6.2bn of outflows in the latest week, down from $17.7bn of outflows in the previous week.
Danielle DiMartino Booth, chief executive of Quill Intelligence, a research group, said the Federal Reserve’s emergency rate cut of half a percentage point this week helped cushion the blow in US stocks and corporate credit markets.
The Fed’s surprise lowering of its fed funds policy rate followed supportive statements from finance ministers and central banks across the globe, as the G7 countries co-ordinated their message to markets.
“That was enough for a relief bounce in equities and enough to thaw the frozen credit markets,” Ms DiMartino Booth said. “We had not seen new corporate credit deals all last week and now policymakers have resurrected that. But credit will continue to force Fed chair (Jay) Powell’s hand again and again until he run’s out of chips to bet.”
US markets suffered another day of losses on Thursday as yields on US Treasuries hit record lows.