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Since Donald Trump's U.S. presidential election win last
November, investors have bet that his promised fiscal splurge
will boost growth and inflation, fuelling a rally in U.S.
stocks.
Although details of his spending program are still scarce, an
announcement on Thursday of a "phenomenal" tax plan over the
next few weeks sent all three U.S. stock indices to record
highs.
"It's inflation-on in stocks," BAML analysts said in a note.
"Flows, at least this week, are clearly showing no fatigue in
the 'leadership' of the reflation rally."
BAML remains bullish on risk assets, the bank added.
Investors added $6.3 billion to equity funds in a sixth straight
week of inflows, and while U.S. stock funds saw outflows,
value-oriented U.S. equity funds attracted $1.9 billion while
Japanese equities received $3.4 billion.
BAML said this was the largest week of inflows for Japan since
the election. Japanese exporters are expected to benefit from
U.S. growth as consumer spending picks up.
Investors also poured into emerging markets, with some $2.5
billion of inflows to emerging debt funds, and $1 billion of
inflows to emerging equity funds.
Together, emerging stocks and bond funds have seen $11 billion
in inflows year-to-date, with the benchmark emerging equity
index powering to five-month highs.
Emerging stocks have effectively reversed a heavy selloff that
they had suffered immediately after Trump's election. Investors
had feared his talk of protectionism and scrapping trade
treaties would hurt export-dependent emerging economies.
Now, however, investors were chasing this "cyclical laggard",
BAML said, noting Trump's protectionist threats had so far
proved to be dollar-negative.
That "has made EM the contrarian Q1 winner", the bank added.
A dip in bond yields triggered buying of investment grade bonds
with a bumper $7.6 billion of inflows, the largest since August
2016.
High-yield, or junk, bonds attracted $1.9 billion, whilst TIPS
funds, which invest in inflation-protected securities, took in
$1 billion, their biggest week since Trump's election, the data
showed.
(Editing by Janet Lawrence)
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