Weekly Fund Flows:Turning down the volume

Without giving clearer guidance on his fiscal expansion plans in the pressconference last week, US president-elect Trump left equity investors somewhatdisappointed: All DM equity regions witnessed mutual fund redemptions intothe close of last week’s data set, with particular focus on the US where ETFinflows could not outweigh MF redemptions, resulting in a net negative flowfor US equity funds overall. On the other hand, and with US 10-year bondyields effectively flat since end-November, bond funds gained decent inflowswith investors moving into DM mandates at the highest pace in 14 weeks, andas such bringing the bond-to-equity rotation to a halt.

    Meanwhile EM funds continued their comeback, with total EM flows (i.e. bondand equity mandates) rising to their highest weekly inflows since Oct’16. Withthe dollar stopped on its track for now on the lack of further US fiscal policydetails, the continuous rise in metal prices could lend EM equity funds furthersupport (see top right chart). Yet, we think metal prices will come underpressure if the Chinese credit impulse turns negative (as we expect it to in Q1),and the USD starts rising again (as our FX strategists expect it to until yearend).

    Elsewhere in the risk flow space, US high-yield funds noted inflows for aseventh consecutive week, and could see more if global financial conditionsremain loose (see bottom right chart). However we remain cautious, as astronger dollar and a higher rate environment could see financial conditionscoming off its 6-year high level of accommodation. High-yield spreads havealso fallen to within 60bps of their post-crisis trough, and our US creditstrategist projects spreads some 140bps above current levels.