Global investors showed a strong preference for lower-risk assets, focusing on money market and government bond funds in the week leading up to August 14, as they awaited clearer signals on the state of the U.S. economy.

According to data from LSEG, investors funneled a net $14.24 billion into global money market funds during the week, building on the $97 billion inflow from the previous week. Government bond funds also continued to attract interest, securing $2.6 billion in net inflows, marking the 15th consecutive week of positive movement in this asset class.

Economic Concerns and Market Reactions

The surge in demand for safer investments was largely driven by concerns over the U.S. economy, particularly after a disappointing jobs report and weak manufacturing data raised fears of a potential recession. These concerns triggered a global stock market sell-off, prompting investors to seek refuge in less volatile assets.

However, the market landscape began to shift as more favorable U.S. inflation data and unexpectedly strong retail sales figures emerged. These developments helped stabilize equities, leading to a resurgence in riskier asset classes.

Shifts in Equity and Bond Fund Investments

Equity funds, which had been on a downward trend, saw a reversal as they recorded net inflows of approximately $857 million in the week to August 14. This was a significant recovery from the previous week’s substantial net outflow of $4.56 billion.

Regionally, European funds attracted $6.57 billion in net purchases following two weeks of outflows, while Asian funds gained a net $2.09 billion. In contrast, U.S. equity funds experienced a net outflow of $8.92 billion.

Sector-specific investments also saw notable movements. Investors allocated a net $938 million to the tech sector and $850 million to utilities, while withdrawing $426 million from consumer discretionary funds.

Global bond funds continued their strong performance, securing a net inflow of $4.04 billion, marking the 34th consecutive week of positive inflows. Sterling-denominated global bond funds were particularly popular, attracting $2.34 billion, the highest level since at least November 2020. However, corporate and loan participation funds faced challenges, with net outflows of $3.85 billion and $653 million, respectively.

Commodities and Emerging Markets

In the commodities sector, energy funds saw a reversal, with net outflows of $193 million after five weeks of consistent inflows. Conversely, precious metal funds rebounded to a net purchase of $645 million, following a net sale of $713 million the previous week.

Emerging markets continued to struggle, with data from 29,578 funds showing a net outflow of $1.21 billion from equity funds, extending a 10-week losing streak. However, bond funds in emerging markets managed to attract net purchases of $92 million, indicating some investor interest in fixed-income opportunities within these regions.

(Adapted from Reuters.com)

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