Investors in funds worldwide pulled US$1.3 billion from stock funds in the latest week, as the US government partially shut down because of a budget impasse and more concerns arose about the debt ceiling, data from a Bank of America Merrill Lynch Global Research report showed today.
The outflows from stock funds, in the week ended Oct. 2, extended the prior week's withdrawals of US$1.5 billion, according to the report, which also cited data from fund-tracking firm EPFR Global. Congress failed to reach a midnight deadline to agree on a spending bill, leading to the shutdown on Oct. 1.
The shutdown was the first in 17 years. Worries also grew ahead of a looming fight between Democratic and Republican lawmakers over raising the US debt ceiling. The United States could face an unprecedented default if Congress does not raise the US$16.7 trillion debt limit by Oct. 17.
Outflows from stock and bond funds over the past two weeks have been small, compared with outflows of US$60 billion over the three weeks beginning July 28, 2011, the report said. Those outflows came during a prior round of debt ceiling debates that led Standard & Poor's to cut the US credit rating from AAA to AA-plus.
Emerging market stock funds had outflows of US$2.1 billion in the week ended Oct. 2, marking their first outflows in four weeks, the report said. US stock funds had smaller outflows of US$600 million, less than one-tenth of the prior week's outflows of US$7.4 billion.
Despite worries over the US government shutdown and debt ceiling, the S&P 500 stock index rose a slight 0.1% over the weekly period. MSCI's emerging market stocks index fell 1%.
European stock funds, meanwhile, attracted US$900 million in new cash, down from inflows of US$2.3 billion the prior week but still marking their 14th straight week of inflows. The inflows came despite the FTSEurofirst 300 Index's decline of 0.8% over the weekly period.
Investors pulled US$900 million from bond funds, reversing the prior week's inflows of US$4.5 billion, which were the biggest in five months. Despite the outflows from risky stocks, risky high-yield junk bond funds attracted US$1.3 billion, marking their fourth straight week of inflows.
Emerging market bond funds had US$200 million in outflows, reversing inflows of US$600 million the prior week. Funds that hold Treasury Inflation Protected-Securities (TIPS) also had outflows of US$200 million, marking the 25th straight week of withdrawals from the funds.
TIPS prices have been hit by a bond market selloff following signals in May that the Federal Reserve could scale back its US$85 billion in monthly bond purchases this year. The Barclays US TIPS Index was down 6.6% for the year.
Investors also pulled US$600 million from commodities funds, which mainly invest in physical gold. The precious metal on Oct. 1 slid below US$1,300 per ounce to its lowest price since early August. – Reuters, October 4, 2013.