BofAML: Los contrarian, alcistas en acciones europeas y bajistas en bonos emergentes (The Flow Show)

Redacción - Lunes, 25 de Julio

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The Flow Show: Pain Trade: long EU stocks, short EM debt
•   Flow capitulation into "one & done" Fed-plays: Gold, EM debt, EM equities
•   Pain trades: Banks>Bonds, EU equities>EM debt; catalysts = Fed, Italian bank resolution, Japanese helicopter
•   Asset price history around Japanese fiscal stimulus announcements

Talking Points

Pain Trade: record week of inflows to EM debt funds (Chart 1)…record week of redemptions from EU equity funds (Chart 2)…summer contrarian pain trade = long EU stocks, short EM debt.

Stampede into EM: record inflows to EM debt funds ($4.9bn); largest EM equity inflows in 12 months ($4.7bn)...investors furiously chasing carry in EM debt markets, capitulating into "weak $" winners (gold, EM debt & now EM equities).

The Big Pain Trade: = long Banks, short Bonds…note flow reversal…largest financials inflows since 2015 ($0.8bn)…largest outflows from Treasuries in 15 weeks ($1.4bn). 

Big Pain Trade Catalysts: 1. strong US consumer/housing allowing Fed to hint it is not "one & done", 2. EU/ECB bank policy moves = Italy bank resolution, 3. >¥15-20tn Japan fiscal stimulus announcement with implicit BoJ helicopter. 

Big Japan fiscal stimulus = +ve Nikkei: stocks rally 1 month ahead of fiscal announcement, pause after package announced, rally subsequent months; Japanese yen tends to strengthen; BofAML GWIM data show exodus from Japan ETF's (Chart 6). 

 

Chart 1: Record inflows to EM debt funds ($bn)

Source: BofA Merrill Lynch Global Investment Strategy, EPFR Global

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