25 May , 2022 By : Kanchan Joshi
Global mutual funds outflow could reach the tune of $350 billion this year in the equity markets unless fear of recession diminishes amidst an uncertain macro backdrop and monetary policy tightening. Barclays expects the US to continue to be more vulnerable in further equity selling than compared to European Union, citing higher valuation as the reason.
According to Barclays, the equity outflows amounted to an average of 2.6% of mutual funds' assets under management (AUM) in previous periods of major stock sell-offs, such as the Great Financial Crisis of 2008-09, compared to 0.3% this year, which implies another $350 billion of equity sell-off is forthcoming this year unless recession fears diminish, reported by Reuters.
Further, Barclays data showed that mutual funds investors were net sellers of equities this month - which is for the first time since August 2020. However, the mutual funds' equity outflow is still fractional compared to a record of $1.3 trillion in inflows since 2020.
In Barclays' opinion, both economic momentum and EPS revisions momentum have turned negative, which suggests the direction of travel is likely towards more (equity) outflows, although the magnitude is unclear at this stage.
Further, Barclays does not expect the consumer outlook to get any better if the U.S. Federal Reserve decided to be more aggressive on monetary policy, even though income and business fundamentals look supportive for now.
On a global level markets have been volatile as investors offloaded their equities extensively due to rising inflation that has pushed major economies to hike interest rates. Further, Russia's invasion of Ukraine led to a surge in energy, crude oil, yields, and other commodity prices - which also added to the inflationary pressures.
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