Unambiguous entry into contrarian-BofA buying territory | Photo credit: Shutterstocks
LONDON, May 20 (Reuters) – The evaporation of trillions of dollars from global financial markets in recent weeks has triggered a very clear contrarian buy signal according to BofA’s ‘Bull & Bear’ trend indicator, explains Friday the American bank.
At the same time, emerging markets are going through their worst period since the height of the coronavirus crisis, she adds.
Fear that inflation and rapidly rising interest rates could push major economies into recession has sent markets into a downward spiral and the MSCI World Index is now down nearly 18% since January 1 , its worst start to the year in recent memory.
BofA analysts say their ‘Bull & Bear’ market sentiment indicator is moving ‘unambiguously into contrarian buy territory’ after the massive outflows suffered by equities, high-yield debt and bonds from emerging countries.
A contrarian investment strategy consists of going against the current dominant trend in the markets.
Funds specializing in emerging debt suffered in one week their largest outflows since March 2020 ($6.1 billion) and high-yield debt funds the largest withdrawals in 14 weeks ($4.3 billion ), specifies BofA, which cites data from EPFR.
On the equity side, Europe suffered a 14th consecutive week of withdrawals.
In total, equity funds around the world posted weekly net outflows of $5.2 billion and bond funds outflows of $12.3 billion, their seventh week of negative balance in a row. (Report Julien Ponthus, French version Marc Angrand, edited by Jean-Michel Bélot)