Tech stocks, emerging market debt see inflows on “stagflation” bets

Business

Investors rushed to scoop up emerging market debt and technology shares in the week to Wednesday, BofA Securities said in a weekly note, with the U.S. investment bank’s own private clients boosting their equity allocations to a record high.

Equity funds pulled in $12.7 billion while bond funds attracted $12.6 billion, BofA found, citing EPFR data. Cash was also surprisingly in demand with inflows at a five-week high at $15.2 billion.

Real estate investment trusts, seen as providing high but sustainable returns, benefited from an overall macroeconomic picture marked by slowing growth and rising inflation, enjoying their biggest inflow in 2-1/2 years at $1.8 billion.

And even though private clients boosted their equity allocations to a record high of 65.3% at the expense of bonds and cash, their asset allocation has tilted towards bank loans, inflation protected securities and utility shares.

Financial stocks were hit by a $2 billion outflow, and clients pulled $200 million out of gold.

“The macro backdrop is higher inflation, hawkish central banks, weaker growth which means stagflation,” analysts led by Michael Hartnett at the bank said in a note.

BofA said the flood of cheap central bank money sloshing in financial markets is set to slow. It expects bond purchases by global central banks to fall to $0.3 trillion in 2022, a fraction of $2.3 trillion in 2021.