A $150 Billion Exit From Stocks May Be a Good Thing in a Crisis
Investors have pulled $150 billion from global equity funds this year and new stock issuance remains muted.
(Bloomberg) -- Bad news for equities now could prove to be a savior in any market correction later, according to strategists at Sanford C. Bernstein.
Investors have pulled $150 billion from global equity funds this year and new stock issuance remains muted, with AB InBev shelving an initial public offering of its Asian operations just last week. Despite a stellar stock rally that’s added almost $10 trillion in value this year, market participants remain cautious amid growth concerns as the U.S. and China dither on trade.
For Bernstein, investor wariness is cause for optimism because it makes unwinding positions manageable if there is a market correction or economic slump.
“This selling by traditional fund investors can provide something of a cushion for markets going into a slowdown and with many markets being fully valued,” the strategists, including Mark Diver, said.
Although stock markets got a shot in the arm from dovish central-bank commentary last month, the latest Bank of America Merrill Lynch fund manager survey shows that cash holdings remain elevated. Instead of equities, many traders have been piling into bonds, with debt fund inflows amounting to a whopping $254 billion this year, according to Bank of America and EPFR Global data.
In addition to equity fund outflows, Bernstein says the combination of elevated buyback activity and muted equity sales is positive for stock market returns, lifting the firm’s global net issuance indicator to the most supportive levels in 24 years.
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To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Monica Houston-Waesch, Namitha Jagadeesh
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