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March 13, 2014 at 09:09 AM
(Bloomberg) — Investors who beat a path out of global equity markets earlier this year are stampeding back in.
More than $41 billion has returned to U.S. exchange-traded funds that own shares in the past four weeks, reversing withdrawals that swelled to as much as $40.2 billion last month, according to data compiled by Bloomberg. Cash has flowed back as the MSCI All-Country World Index rallied 5.8 percent from the four-month low it reached Feb. 4, when turmoil in emerging markets spurred speculation the global recovery would slow.
The reversal is the latest sign of confidence in a five- year bull market that has gained momentum amid 11 straight quarters of expansion in U.S. gross domestic product. The MSCI gauge this month reached its highest level since 2007 after investors blamed cold weather for U.S. retail sales and housing data that trailed economists’ forecasts while world leaders pledged to maintain accommodative policies to spur growth.
“Dwindling outflows show investors regaining confidence that the global economy is going to grow,” Joseph Quinlan, the chief market strategist at Bank of America Corp.’s U.S. Trust, which oversees about $330 billion, said by phone from New York. “When you look at growth in the U.S., this is emblematic of one economy pulling other economies along.”
Global equities
About $1.5 billion was deposited to global equity ETFs on March 11, bringing the total inflows for the month to $15.3 billion, data compiled by Bloomberg show. Investors pulled almost $15 billion out of the funds in January and the MSCI All- Country World Index was down as much as 5.8 percent through Feb. 4 after Argentina unexpectedly devalued the peso, Turkey doubled interest rates and manufacturing growth slowed in China.
U.S. consumer confidence improved last month and employers added more workers than projected, a sign that the world’s largest economy is starting to shake off the effects of the severe winter weather that slowed growth at the start of 2014. Federal Reserve Chair Janet Yellen has pledged to maintain Ben S. Bernanke’s policy of cutting bond purchases in measured steps. While policy makers monitor data to determine if recent weakness in the economy is temporary, “if there’s a significant change in the outlook, certainly we would be open to reconsidering,” she said in testimony to Senate Banking Committee on Feb. 27.
Bond purchases
Three rounds of bond purchases from the Fed have propelled the Standard & Poor’s 500 Index as much as 178 percent higher from a bear-market low in 2009. The benchmark gauge hit an all- time high of 1,878.04 on March 7. It rose 0.1 percent to 1,870.56 as of 9:56 a.m. in New York as data showed retail sales rose for the first time in three months and jobless claims unexpectedly fell.
“Stocks seem to shrug off any hits that would have moved them lower,” Matt McCormick, who helps oversee $11 billion as a portfolio manager at Cincinnati, Ohio-based Bahl & Gaynor Inc., said in a phone interview. “The thinking is probably that Yellen will come in and bring liquidity to the market if we get anywhere close to a substantial correction, so why not enjoy the party while it lasts.”
Not only in the U.S., monetary policies remain loose from Japan to Europe. The Bank of Japan this week maintained record easing, keeping a pledge to expand the monetary base at a pace of 60 trillion to 70 trillion yen ($680 billion) per year. Seventy-three percent of economists surveyed by Bloomberg forecast the central bank will add to easing by the end of September to support the economy.
‘Long way’
