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Global mutual funds investors could sell $350 billion worth equities this year -Barclays
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(Reuters) – Barclays said on Wednesday global mutual funds investors could sell equities worth a further $350 billion this year, unless fears of recession diminish, due to an uncertain macro backdrop and monetary policy tightening.
(Reuters) – Barclays said on Wednesday global mutual funds investors could sell equities worth a further $350 billion this year, unless fears of recession diminish, due to an uncertain macro backdrop and monetary policy tightening.
Investors have been selling equities in the wake of rising inflation, prompting economies to hike interest rates. Russia’s invasion of Ukraine added to the inflationary pressures amid a surge in energy and commodity prices, increasing costs to companies as it hurt their valuations along with volatility in global financial markets.
Barclays said equity outflows amounted to an average of 2.6% of mutual funds’ assets under management (AUM) in previous periods of major stock sell offs, such as the Great Financial Crisis of 2008-09, compared to 0.3% this year, which implies another $350 billion of equity sell-off is forthcoming this year unless recession fears diminish.
Mutual funds investors have been net sellers of equities this month, for the first time since August 2020, though equity outflows are tiny compared to the record $1.3 trillion inflows since 2020, Barclays said.
“Both economic momentum and EPS revisions momentum have turned negative, which suggests the direction of travel is likely towards more (equity) outflows, although the magnitude is unclear at this stage,” the brokerage added.
Barclays believes the consumer outlook is unlikely to get any better if the U.S. Federal Reserve gets more aggressive on monetary policy, even though income and business fundamentals look supportive for now.
Nerves about a global recession were jangled on Tuesday by weak U.S. housing market data and the U.S. Federal Reserve has vowed to act aggressively by hiking the cost of borrowing and minutes from its most recent meeting, which is due later.
The brokerage continues to see the U.S. to be more vulnerable to further equity selling than the European Union, given higher valuations.
(The story corrects to Wednesday from Friday in paragraph 1)
(Reporting by Siddarth S in Bengaluru; Editing by Krishna Chandra Eluri)
A mutual fund is an investment vehicle that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities, managed by professional fund managers.
Monetary policy refers to the actions taken by a country's central bank to control the money supply and interest rates to achieve macroeconomic objectives such as controlling inflation and stabilizing currency.
Equities represent ownership in a company, typically in the form of stocks. Investors buy equities to gain a share of the company's profits and potential appreciation in value.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI).
Equity outflows occur when investors withdraw their investments from equity markets, often due to market volatility or economic uncertainty, leading to a decrease in the total assets under management.
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