As soon as positive news emerged about Covid-19 vaccines from the United States last week, investors stormed back into riskier assets as they invested $27 billion into equity funds amid euphoric buying of shares in the sectors that have been worst hit by the novel coronavirus pandemic which include industries such as banks, travel and leisure, and oil, according ot the Bank of America (BofA).
The flow of investments and capital into the global stock market increased to $71.4 billion, the biggest ever, in the last two weeks, the bank said citing data from EPFR.
United States and emerging market stocks led the inflows of investment in stocks.
However, despite this trend, investors were unwilling to let go of the high-flying technology stocks in which there was inflow of $2.4 billion in investments last week. The feedback was “we’re on it (the rotation to value stocks), but we ain’t selling tech”, BofA said.
Since the announcement by Pfizer of the positive interim results from its vaccine trial earlier this month, which also increased hopes of an economic recovery, there has been growth in the price of stocks – primarily of value stocks which are typically shares of companies that are more sensitive to economic cycles.
It is likely that there will an outperformance of value stocks compared to growth stocks, high-yield debt instead of investment-grade debt, emerging markets compared to S&P 500 and small cap versus large cap in 2021, which BofA said is likely to be a the “year of vaccine”.
The move of investors into equities resulted in an outflow of $4 billion in investments from fold which again was the largest outflow ever. Still, analysts expect gold to end 2020 with the best performance since 2010.
The bank, however, advised clients to “sell the vaccine news”.
“We say credit and equity prices (are) to peak in coming months on peak positioning, peak policy, peak profits as optimism tops ahead of vaccine distribution.”
In recent days their stock market forecasts for 2021 have been upgraded by most of the major banks as they have said that they are expecting to see double digit returns on US and European stock indexes.
“With both fiscal and monetary policy still highly accommodative, a sharp rebound in company earnings will drive equity returns,” said Jeroen Blokland, a portfolio manager at Robeco.
(Adapted from Reuters.com)