The Strategist

Investors are fleeing from pandemic into gold and bonds

06/30/2020 - 06:04

International investors have significantly reduced their interest in risky assets. Over the past week, the net outflow of funds from equity funds of developed countries amounted to $ 4.6 billion, from emerging markets funds - $ 2.6 billion. Investors are reducing investments in commodity funds focused on investments in oil, amid growing risks of a slowdown in the global economy due to a sharp increase in the number of people infected with the novel coronavirus. At the same time, investors are increasing investments in gold and bonds: $ 2.9 billion and $ 20 billion, respectively, were received in profile funds for the week.

The latest Emerging Portfolio Fund Research (EPFR) data indicates increased outflows from risky assets such as equity funds. According to Bank of America (BofA, which takes into account EPFR data), the total volume of foreign investments withdrawn from such funds exceeded $ 7.2 billion last week, which is $ 0.8 billion more than the outflow a week earlier. At the same time, the main outflow of funds fell on the funds of developed countries, while in the previous period the funds of developing countries were outsiders. According to EPFR, developed markets funds lost over $ 4.6 billion over the week, and emerging markets funds lost $ 2.6 billion.

Investors are leaving equity funds amid growing fears of the second wave of the coronavirus pandemic. At the end of last week, over 40 thousand new infections were recorded daily in the United States (twice as much as the average in May), and the total number of infected exceeded 2.63 million people. Earlier last week, the International Monetary Fund downgraded the forecast for a global economic decline in 2020 to 4.9% from 3%.

At the same time, according to portfolio managers, as a result of the rise in stock markets in April - early June, the March collapse was won back. Now, the money is leaving the market on a negative background. This is confirmed by the EPFR data, according to which more than two-thirds of the outflow ($ 5.2 billion) fell on ETFs, the most speculative class of funds.

Profit-taking is also noted in oil, another class of assets that has risen in price, which could suffer in the event of a second wave of a pandemic. According to BofA, last week the clients of oil-oriented funds withdrew $ 1.5 billion from them. This is two and a half times higher than the outflow a week earlier. Investors actively entered into such funds in the second and third decades of April, during which time investments amounted to $ 8.4 billion. The calculation for a partial market recovery against the background of the new OPEC + agreement was justified, and by early June, prices had almost tripled, exceeding $ 40 per barrel. In such circumstances, from the beginning of the month, investors began to reduce investments in oil funds. As a result, prices stabilized in the range of $ 40–45 per barrel. More important for the market are OPEC + plans to fulfill their obligations in full. In such conditions, investors again increase their investments in protective assets - gold and reliable bonds.

According to EPFR, over the past week, international investors have invested almost $ 20 billion in bond funds. Funds focused on investments in precious metals have raised $ 2.9 billion - the highest amount since mid-May. As a result, gold quotes have been near the maximum since 2012, near the mark of $ 1,770 per troy ounce.