July 6, 2018 / 8:58 AM / 17 days ago

Investor exodus from EM and European stocks faster than 2016-BAML

LONDON, July 6 (Reuters) - Investors have pulled money out of emerging markets and European equities faster than in 2016 over the last two months, Bank of America Merrill Lynch (BAML) strategists said on Friday, as fears about the impact of a trade war took their toll.

Some $24 billion has been withdrawn from European equity funds and $13 billion from emerging market equities in the past eight weeks, the bank said, as the United States stepped up its attack on its key trading partners.

In recent weeks the United States has threatened to impose a 20 percent tariff on cars imported from the European Union (EU), after hitting the EU, Canada and Mexico with tariffs of 25 percent on steel and 10 percent on aluminium at the start of June.

The EU has responded by imposing its own import duties of 25 percent on a range of U.S. goods, including steel and aluminium products, farm produce such as sweetcorn and peanuts, bourbon, jeans and motor-bikes.

On Friday, Washington slapped tariffs on $34 billion worth of Chinese imports, with Beijing responding in kind. U.S. President Donald Trump has warned that the U.S. may ultimately impose tariffs on more than a half-trillion dollars’ worth of Chinese goods.

The tit-for-tat tariffs have raised fears of a full-blown and protracted trade war that threatens to damage the world economy, sending investors running for cover. “Risk appetite (is) much diminished,” the bank’s analysts said.

In the week to July 4, investors pulled some $2.9 billion from European equities, racking up a 17th straight week of outflows, while emerging market stocks funds lost $1 billion in their seventh losing week.

European stocks are down almost two percent year-to-date, while emerging equities have lost nearly nine percent, putting them near the bottom of BAML’s league table of cross-asset winners and losers.

European stocks found some relief this week as the U.S. offered to suspend its threats to impose tariffs on cars if the EU lifts its duties on U.S. cars, according to press reports.

Overall, outflows from global equities were modest, totalling just $300 million, following massive losses in the previous week. Redemptions from U.S. equity funds were also small, at $400 million, while Japanese stocks enjoyed $2.3 billion of inflows.

BAML analysts noted that a rally of 30 basis points in U.S. Treasuries had sparked big inflows into government bond funds, which attracted some $2.7 billion, a 12-week high.

Real estate investment trusts also attracted $500 million, their biggest inflows in a year, but emerging market debt funds lost $1.5 billion in an 11th week of redemptions.

Reporting by Claire Milhench, Editing by William Maclean

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