| LONDON, Sept 30
LONDON, Sept 30 Global investors returned
decisively to "risk-on" mode in the past week, Bank of America
Merrill Lynch (BAML) said on Friday, noting multi-billion dollar
inflows into equity, corporate bond and emerging market funds.
Its data, which covers flows through Wednesday, does not
appear to capture the broader market stress relating to Deutsche
Bank, whose shares have slumped to record lows following the
imposition of a potential $14 billion fine from U.S. regulators,
sparking contagion fears across the European banking system.
Equity fund inflows of $5.6 billion were the largest in
seven weeks, BAML said, noting that $9.9 billion flows to
exchange-traded funds had masked $4.2 billion that fled mutual
The prior week had seen $7.4 billion flee world equity funds
as investors had turned cautious before Sept 20-21 meetings of
the U.S. Federal Reserve and Bank of Japan.
But with those meetings out of the way, Japanese and U.S.
equities received $2.2 billion and $4.2 billion, respectively,
over the week, though Europe lost another $1.9 billion for a
record 34-week outflow streak.
BAML attributed the improved sentiment to rock-bottom
volatility as the Fed indicated it is in no rush to raise
interest rates, and Democrat Hillary Clinton was seen to have
won the first debate between the two presidential candidates.
Japan's central bank too affirmed its commitment to
continuing its asset purchase programme as long as needed,
calming jittery markets.
Bond fund inflows hit a seven-week high of $9.3 billion,
though government debt funds lost $1 billion. Money flowed
instead to high-yield bonds which took in $2.9 billion, the
largest in 11 weeks, while emerging debt received $2.4 billion.
Emerging debt has now taken new money for 13 straight weeks
while emerging equities received $1 billion, bringing
year-to-date inflows to $5.8 billion.
BAML highlighted emerging debt, which has enjoyed a record
13-week inflow streak of $27 billion, as a "crowded trade" along
with investment grade and municipal bonds.
It said European stocks and "active" mutual funds were most
unloved, with 34 and 30 straight outflow weeks respectively.
BAML also noted its clients were sceptical about switching
into assets that benefit from a higher-inflation environment.
Earlier this month, world bond markets were roiled by a
sudden spike in yields though that was due more to the notion
that central banks were rethinking their ultra-loose monetary
policies, rather than any signs of inflation or better growth.
BAML noted that the flow of funds has clearly favoured
so-called deflation assets. In the past year, $109 billion has
fled equity funds while bond funds have received $137 billion.
(Reporting by Sujata Rao; Editing by Jamie McGeever and