* “Violent rotation” out of bonds into equities
* Emerging market debt hit especially hard
* “Monster inflows” to health and financials
By Claire Milhench
LONDON, Nov 18 (Reuters) - Investors pulled $18.1 billion out of global bonds in a post-U.S. election ‘bloodbath’, the largest weekly outflows since June 2013, while global equity fund inflows hit a two-year high, Bank of America Merrill Lynch (BAML) said on Friday.
Donald Trump’s election as U.S. president and his expected focus on tax cuts and higher infrastructure and defence spending is fuelling a ‘violent rotation’ out of bonds and into equities, which attracted $27.5 billion in the week to Wednesday, BAML said in its weekly note.
His planned fiscal stimulus is expected to fuel U.S. growth and inflation. This has set global bonds on track for their biggest two-week loss in decades, which suggests the 30-year bond bull market may be coming to an end.
“Trump marked the moment investors started to position for a bond bear market; note yields can rise quickly ... price action is always violently big at secular inflection points,” BAML’s analysts, led by Michael Hartnett, said in a note.
Within fixed income, emerging market debt funds suffered record redemptions of $6.6 billion as investors fretted that a Trump fiscal splurge would lead to faster tightening by the U.S. Federal Reserve and a stronger dollar, providing headwinds for emerging markets that rely on external financing.
But the “bond bloodbath” was not confined to emerging markets, with $3 billion taken out of muni bond funds, the largest since June 2013, $3.4 billion from government bond funds, a one-year high, and $3.8 billion from high-yield bond funds. Investment grade bond funds lost $2.4 billion.
Instead investors shovelled money into global stocks, with exchange traded equity funds attracting the lion’s share - a record $34 billion of inflows. The bank also noted the widest weekly disparity between stocks and bonds flows ever.
Not surprisingly given Trump’s talk of expansionary policies, U.S. equity funds pulled in $30.7 billion, the largest weekly inflows in two years.
BAML also noted “monster inflows” to financial and healthcare sector funds of $7.2 billion and $3.1 billion respectively, whilst materials attracted $1.4 billion, the largest inflows in three years. These sectors are expected to benefit from deregulation under Trump and a programme to patch up crumbling U.S. infrastructure.
Emerging market equities suffered their largest weekly outflows in 14 months, losing $5.4 billion, whilst some $1 billion was pulled from Japanese equities.
European equities attracted a modest $800 million, the largest in nine months, after a prolonged period of selling.
A surge in the dollar to near 14-year highs also triggered the largest outflows from precious metals since June 2013, at $2.7 billion. (Reporting by Claire Milhench; Editing by Mark Trevelyan)