Significant inflows were seen in global equities funds in the week ending January 31, driven by encouraging data on U.S. economic growth and signs of continued cooling of pricing pressures as indicated by inflation readings. As a result, investor expectations of future interest rate hikes were dampened and worries about a possible recession were eased, opening the door for a more optimistic assessment of global economic growth.
These messages were well received by investors, as evidenced by the S&P 500 index’s 2.5% weekly gain and the Nasdaq Composite’s 1.2% gain. Among the broad-based domestic indices, the Russell 2000 outperformed the Dow Jones Industrial Average and the S&P 500. Conversely, over the week, European and Japanese stocks saw losses.
With just one of the 11 main Fund groups seeing net redemptions for the week, flows to EPFR-tracked funds were strong. Commitments to funds with fully global mandates offset a fifth straight week of outflows from the Global ex-US equity funds group, ending the diversified Developed Markets equity funds group’s three-week outflow streak.
Money market funds, which have seen the largest weekly inflow since mid-June, led the strong inflows to other fund groups. A net of $28 billion was drawn to the group, with the strongest weekly inflows in almost six months coming from Japan Money Market Funds. Bond funds also saw inflows of new money this week, with $5.7 billion going into government and corporate bond funds and a record $12.5 billion going into global high-yield funds.
The main cause of the flows was investors holding onto their positions in anticipation of a recovery in risk appetite after a tumultuous fourth quarter. A softer landing in the US, signs that interest rates have peaked, and an above-average earnings season for businesses globally all attracted investors to buy stocks.