Global Investors Flock to Equity Funds Following Federal Reserve Rate Cut
Global investors eagerly embraced equity funds in the week leading up to Sept. 18, as they anticipated the Federal Reserve's interest rate cut to kick off its long-awaited reduction cycle. According to LSEG data, investors snapped up a net $5.21 billion worth of equity funds during the week, following $6.54 billion in net purchases the week prior.
The U.S. Federal Reserve surprised the market by slashing its benchmark policy rate by 50 basis points, which sparked a rally in riskier assets worldwide, including stocks and commodities.
Asian equity funds continued to attract investments for the 16th consecutive week, raking in approximately $2.77 billion. European funds also saw significant inflows, with net investments totaling $3.29 billion, while net sales in U.S. funds dropped to a four-week low of $1.37 billion.
However, sector funds experienced net withdrawals for the third straight week, totaling approximately $1.2 billion. The financials and tech sectors led this exodus, with net sales of $950 million and $606 million, respectively.
Investors pulled out a total of $16.06 billion from money market funds after six weeks of net buying, indicating a rise in investor risk appetite.
On the other hand, global bond funds continued to attract inflows for the 39th week in a row, capturing a net $11.24 billion.
Global short-term bond funds received $2.3 billion, following net purchases of $2.65 billion the previous week. High-yield funds also saw inflows of $1.71 billion, although investors withdrew about $218 million from government bond funds.
Gold and other precious metal funds remained popular for the sixth consecutive week, drawing in about $544 million in net purchases, while energy funds saw a reversal in trend with net sales amounting to $129 million after four weeks of inflows.
Data on 29,544 emerging market funds revealed that equity funds experienced a 15th consecutive weekly outflow at a net $293 million. In contrast, bond funds secured $416 million, marking a 13th successive week of inflows.
Analysis:
Investors showed renewed confidence in the equity market following the Federal Reserve's interest rate cut, as evidenced by the strong inflows into equity funds globally. The rate cut boosted riskier assets, such as stocks and commodities, while also driving investors towards bond funds, especially short-term and high-yield bonds. Sectors like financials and tech saw net withdrawals, signaling a shift in investment preferences. The data also revealed a mixed sentiment in emerging markets, with continued outflows from equity funds but consistent inflows into bond funds. Overall, the market sentiment seems to be cautiously optimistic, with investors balancing riskier assets with safer options in their portfolios.