Investors Withdraw $18.8B from Global Equity Funds Due to Rate Hike Fears

Investors removed $18.84 billion from global equity funds in the week that ended on June 7, representing the highest weekly net outflows since March 15, as reported on Friday. Among the sectors that saw the highest withdrawals were technology ($736 million) and utility ($552 million).

8 Consecutive Weeks of Withdrawals

Global equity funds witnessed the highest outflows in 12 weeks in the seven days through June 7, with investors pulling out a whopping $18.84 billion. This marked the eighth straight week of net outflows.

The move comes as resilient inflation and tepid economic growth trigger uncertainty among investors, prompting them to withdraw their capital from riskier assets such as equities. Equity funds based in the US and Europe experienced net withdrawals of $16.4 billion and $2.2 billion, respectively. At the same time, Asian equity funds saw net purchases of $375 million.

Meanwhile, equity funds within the technology sector encountered outflows of $736 million after four consecutive weeks of positive flows. Moreover, investors removed $552 million from funds within the utility sector, while adding $610 million into industrials. Conversely, global money market funds saw a net inflow of $55.91 billion, marking the largest weekly allocation since April 5.

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Stubborn Inflation Weighs on Investor Optimism

The consecutive weeks of outflows from US equity funds were in part due to recent economic data which pointed to an acceleration in core inflation and strong consumer spending. Specifically, the annual inflation rate in the US fell to 4.9% in April, while core inflation, which disregards volatile food and energy costs, rose to 5.5%

​​“With policy rates peaking and risks to the economic outlook increasing, we recommend adding exposure to bonds and locking in yields before markets begin to price in much lower interest rates.”

– UBS CIO Mark Hefele in a note to clients

Before the economic data, investor sentiment was improving as markets were bracing for a dovish pivot by the Federal Reserve, following a series of non-stop rate hikes since May 2022. However, with inflationary pressures seeming much more resilient than expected, some investors are bracing for additional rate increases by the Fed in the coming months. Earlier this week, central banks in Australia and Canada caught investors off guard after both announced new hikes, ultimately reviving fears that Fed will follow suit.

Do you think a new interest rate hike by the Fed will reignite bearish sentiment among US investors? Let us know in the comments below.