Before the coronavirus-triggered sell-off in late February, flows were coming into bond funds, particularly US ones, at a record-setting pace. Flows to equity
with global mandates were attracting plenty of fresh money —including above average amounts of retail cash. Among the emerging market (EM) fund groups, China and Brazil equity
recorded above-average inflows. In March, we saw a broad rush. This, I think, was because liquidating those assets tended to come with smaller losses.
Below is a table showing the preliminary monthly figures for the three main groups, and where those numbers rank historically.
Equity, bond, money market flows
Are we done with the exchange-traded fund (ETF) selling, especially in the Indian context, or can there be more pain in the coming months?
I don’t think so. Sentiment towards India was souring before the Covid-19 pandemic began to dominate the investment climate. Capex trends, the government’s focus on nationalist rather than economic goals, inflation, and the health of India’s banking system were all giving investors pause for thought.
Could India attract incremental foreign flows over the next few months?
Fund groups dedicated to EMs, which are viewed as being on top — or on the right track to get on top of — the pandemic, are attracting inflows. India, as mentioned earlier, has issues that were crimping flows before the latest crisis.
Which regions/geographies saw the maximum pullout and where (regions and asset classes) did this money get deployed?
In cash terms, funds with diversified global, US, and European mandates saw the biggest outflow. What money that rotated rather than exited to money market funds has gone to several country fund groups, such as the United Kingdom, China, Switzerland, Japan, Brazil, and Taiwan equity funds and Germany bond funds.
What’s your view on how the markets have reacted to the Covid-19 pandemic? Is worst over? Has a ‘selling fatigue’ now set in?
A range of strategies have been deployed with varying degrees of success, and credible sources of information have emerged. But there is still enough uncertainty. Many questions remain unanswered -- such as will there be a second peak, what is the ability of virus to mutate, etc – to make it a little early to rule out another sharp sell-off.
How long do you think it will take for the global markets and the economy to return to pre-Covid-19 levels? How severely has the health crisis dented the confidence of investors?
I think the equity markets will recover faster than the bond markets. A lot of the support measures from central banks and governments complicate the issuance and yield equations for bonds, while the response of individual businesses to the Covid-19 pandemic gives equity investors a clear metric to judge individual stocks.
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Are the central bank measures adequate to address the problem at hand? What’s your view on how the global central banks have responded and what more do you expect over the next few months?
It is too early to forecast this. If things start to ‘normalise’ by early May, I suspect the global economy will muddle through. If large chunks of the global workforce and consumer base is still locked down in June, the problems will be much harder to solve. Most central banks are low on ammunition.
What is the road ahead for the debt segment because of the health crisis and how the central banks and various governments have responded to it? Is it time to switch to debt?
Before the pandemic sell-off, people were pouring money into bond funds with a pre-retirement rotation playing a big role. So, the underlying demand is strong. Yield hunger is also extreme: The junk bond funds we track had record inflows last week. And there is a US Federal Reserve / European Central Bank (ECB) backstop again. But the official response involves greatly increased debt levels and issuance.