- Global equities sold off and defensive bonds rallied, as fears over the coronavirus spread last month.
- Cyclical sectors saw outflows, while defensive bond-proxy sectors benefited from a flight to safety.
- Investors should expect more volatility ahead, given uncertainty around the impact of the COVID-19 virus.
Coronavirus-led growth concerns hit global equities hard in the second half of February, sparking a swift sell-off. Only 12% of global stocks traded above their 50-day moving average at month’s end, down from 50% mid-month.1 Market volatility surged, and investors rotated into defensive postures.
The massive reversal of market sentiment is consistent with other violent microbursts of volatility over the last few years fueled by exogenous-related growth shocks. The bull market’s foundation—low and slow fundamental and economic growth rates—is not overly strong, so an exogenous event hindering consumer-led growth weakens its walls—creating worries that something more serious may be afoot.
Asset class exchange traded funds flows: Equities saw outflows and bonds inflows, as investors de-risked
Equity flows turned negative after the violent reversal of sentiment last month sent investors de-risking. Equity flows ended the month down $650 million. The defensive posturing was also visible in bond and gold ETF flows. Bond funds took in $14 billion—even with $6.3 billion of outflows from credit-sensitive ETFs. Gold ETFs took in $2 billion.
Originally Posted on March 9, 2020 – February ETF Flows: That Escalated Quickly
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