Investors poured a record $58bn into stock funds this week while slashing their cash holdings, in the latest sign of the fervour sweeping global financial markets.
Technology-focused funds were at the centre of the surge, with net inflows reaching an all-time high of $5.4bn in the week to Wednesday, according to EPFR data collated by Bank of America. The US had the lion’s share of overall stock inflows, at $36.3bn.
Investors also piled $13.1bn into global bond funds while pulling $10.6bn from their cash piles.
The data underline how historically low interest rates and expectations for a big rebound this year in global economic growth have whet investors’ appetite for riskier assets. The shift is causing rising unease among some investors and analysts, who worry that asset prices have become overextended.
Investor bullishness has been stoked by hopes that coronavirus vaccines are speeding up the fightback against the pandemic and that US president Joe Biden’s $1.9tn stimulus proposal will help the economy recover from the coronavirus-driven recession.
US Treasury secretary Janet Yellen on Friday told finance ministers and central bank governors from Group of Seven nations that “the time to go big is now” as she urged further fiscal aid to support a lasting recovery.
“Expectations for the upcoming US stimulus are high,” said Jim Reid, research strategist at Deutsche Bank.
Still, the prospect of another fiscal injection — which follows a $900bn relief bill passed late last year and the record $2.2tn stimulus earlier in 2020 — has raised fears about a potential jump in inflation. “I suspect overheating is the biggest concern,” said Reid.
John Normand, head of cross-asset fundamental strategy at JPMorgan, said that while “cyclical and policy risks are ever-present, mindfulness about market corrections should be particularly high in 2021”. Stock and debt valuations were “above-average on all measures”.
“Valuations are the highest since the tech bubble and some concern is warranted,” said Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors. However, he noted that some of the frothiness was concentrated in specific themes “anything to do with massive growth potential and disruption”.
BofA noted that about 63 per cent of assets under management at its private bank, which serves wealthier clients, was now allocated to stocks — an all-time high.
Wall Street stocks broke records again this week, sending the blue-chip S&P 500 index up more than 4 per cent for the year to date by Friday morning in New York. The rally comes as retail investors have stormed US markets through commission-free trading apps offered by brokers such as Robinhood and TD Ameritrade.
Charles Schwab, another US brokerage, said new account sign-ups in January were up more than 200 per cent year on year to 1,095, highlighting the rapid growth in individual investing.
The sense of euphoria has also swept through bond markets with a big rally in prices knocking global yields to historic lows. This has pushed traders searching for bigger returns to move into increasingly risky asset classes. The borrowing costs for junk-rated borrowers in the US market this week fell below 4 per cent for the first time, reflecting rampant demand.
Spain, one of the eurozone’s weaker borrowers, garnered more than €65bn in orders for a €5bn sale of 50-year debt on Tuesday, as investors raced to lock in positive yields.