LONDON (Reuters) - Most regions saw equity inflows in the week to Wednesday, led by emerging markets and the U.S., Bank of America Global Research said, as investors brought forward expectations for Federal Reserve rate cuts due to softer data.
There were $22.2 billion of equities inflows in the latest week, BofA said in its weekly round-up of flows in and out of world markets. Emerging markets drew $11.1 billion of inflows, the largest weekly figure since February, and the U.S. had $7.9 billion.
The inflows from investors tracked by EPFR in the five sessions to Wednesday came even as equity markets around the world have been under pressure, driven by disappointing earnings and political and economic uncertainty.
The S&P 500 has dropped almost 2% since Monday, while most major benchmarks in Asia have also declined. European markets have fared better, with the pan-European STOXX 600 index broadly unchanged for the week.
The BofA data did not include Thursday's fall, and analysts have also pointed to stretched positioning as being behind this week's selloff, something reinforced by the flow data.
When investors collectively have large overweight positions in an asset, there are few left to increase allocations and plenty that can reduce them.
Markets have since steadied, providing some hope for investors holding stocks.
"Bulls say correction healthy as big levels holding," BofA investment strategist Michael Hartnett said.
Bond funds saw $16.1 billion of inflows, while gold funds had $1.3 billion of inflows, notching their biggest two-week inflows since March 2022, BofA said.
There were $42.3 billion of cash outflows, the largest in three months, as traders added to bets for rate cuts from the Federal Reserve that would typically lead to lower yields on super short-dated government bonds held by cash-equivalent money market funds.
Futures markets are now fully pricing a rate cut at the Fed's September meeting due to signs inflation is heading back towards target and signals of slowing growth and a loosening labour market.
BofA's bull & bear indicator, a measure of market sentiment, jumped to 6.9 from 6.5, its highest level since May 2021.
Meanwhile, Barclays, citing the same EPFR data, noted UK equities saw their first weekly inflow since November 2023.
For the year, cumulative fixed income flows of $358 million overtook cash in the latest week, Barclays said.