Equity funds globally attracted their biggest weekly inflows since March last year as investors grow increasingly confident central banks will support financial markets with accommodative monetary policy.
Equity mutual and exchange traded funds had $14.3bn in net inflows for the week to Wednesday, the largest amount since March last year, according to EPFR Global data. US equity funds were a dominant driver of the activity with $17.8bn flowing into the funds, the highest weekly total in three months.
The activity reflects an appetite for risk assets as the world’s central banks adopt an increasingly dovish outlook.
The Federal Reserve on Wednesday held US interest rates but signalled it would be open to a cut next month. This scenario is now widely anticipated, with Fed fund futures pricing show an 80 per cent expectation the US central bank will cut rates by 25 basis points at its next meeting in July.
Mario Draghi, president of the European Central Bank, said this week the Frankfurt-based institution could consider expanding its €2.6tn bond-buying programme to help increase inflation in the 19-nation eurozone.
The funds data were released on the same day the S&P 500 index of the largest US public companies hit a new record, eclipsing the previous high reached in April. The benchmark is up 17.7 per cent for the year after suffering a dramatic sell-off in December, driven in part by hawkish comments from Fed chairman Jay Powell that spooked the market. The FTSE All-World index, which tracks the world’s largest companies, is up 15 per cent for the year.
“The narrative of policy divergence among central banks ended with the Federal Reserve’s accommodative pivot,” said Ash Alankar, head of global asset allocation for Janus Henderson. “Looking ahead, conditions reflect a ‘goldilocks’ environment with dovish central banks, continued growth and muted inflation.”
Despite the confidence that the Fed will cut rates, some economists remain sceptical. Citi’s economists say they believe the Fed will hold tight on rates for the rest of the year given the relative health of the US economy.
“Economic data remain resilient with industrial production showing signs of stabilisation and retail sales signalling still-healthy US consumer spending,” said Catherine Mann, chief global economist at Citi.