LONDON May 5 Banking on a weaker dollar and low Treasury yields, investors pumped more cash into emerging markets in the past week, with bonds luring new money for the 14th week in a row.
Emerging stocks were the only equity region with meaningful inflows.
Investors continued to dump U.S. stocks in the week to Wednesday May 3, Bank of America Merrill Lynch (BAML) said in a note on Friday, noting disappointing economic growth and U.S. President Donald Trump's failure to deliver on his stimulus pledges.
But emerging equities pulled in $2.4 billion, the largest inflows in four weeks, and emerging debt funds added $2.5 billion, marking 14 straight weeks of inflows, the data showed. BAML said emerging market equities were the best performing sector year-to-date, up 14.9 percent in dollar terms.
Emerging sovereign bonds have returned 6 percent, making them the fourth best performing debt asset class.
"Both EM equity and bond inflows illustrate (the) new expectation of low bond yields, (and a) lower U.S. dollar," BAML said in its weekly 'Flow Show' note.
The bank described U.S. GDP growth as "risible" and said this helped explain why Treasury yields remained trapped in a low trading range, prompting investors to go elsewhere for yield.
The U.S. economy grew at its weakest pace in three years in the first quarter and the U.S. Federal Reserve left interest rates unchanged at its policy meeting on Wednesday.
Futures traders are pricing in a 79 percent chance of a Fed rate hike in June, but there is growing uncertainty as to whether the U.S. economy is really on track for the Fed to raise interest rates twice more this year.
Investors continued to dump U.S. stocks in the week to Wednesday, with some $9.3 billion pulled from U.S. equity funds, the second largest outflows in six weeks.
But U.S. stocks are still up 7.5 percent year-to-date and world stocks hit record highs this week, with BAML attributing the robust performance to the resilient earnings-per-share (EPS) picture.
Globally, $3.6 billion came out of equity funds in total, bond funds attracted $9.7 billion and gold attracted $200 million, in what BAML described as "risk off" flows. Investment grade bonds attracted $5.6 billion and high yield bonds pulled in $200 million. (Editing by Tom Heneghan)
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