Author Topic: FNLondon - Virus ‘fear eats greed’ as investors pull £300m a day from UK equity  (Read 545 times)

jinga nation

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Virus ‘fear eats greed’ as investors pull £300m a day from UK equity funds
'Complacency' over the global coronavirus outbreak came to an abrupt end during the final week of February

UK investors pulled more than £300m a day on average from equity funds during the final week of February, as “complacency” over the global coronavirus outbreak came to an abrupt end.

According to updated figures from data provider Calastone, investors yanked £1.55bn from equity funds on sale in the UK between 24 and 28 February — a move that coincided with Covid-19 spreading from China and into Europe.

Active funds bore the brunt of the selling, enduring 98% of the outflows over the week.

Edward Glyn, head of global markets at Calastone, said: “Fear ate greed for lunch in the last few days of February, as equity funds saw outflows at their most ferocious in five years.

“After an initial flurry of outflows in January, funds benefited from extreme complacency over the coronavirus outbreak. But the news that the epidemic had taken hold in Italy and then quickly spread across the world caused a dramatic reassessment of its potential impact on the global economy. Investors have voted with their feet.”

The outflows from equity funds meant February ended as the worst month since October 2016 for flows across all fund types and asset classes, according to Calastone.

Glyn added: “The curiously relaxed approach to funds focused on UK equities reflected the limited number of infections, as well as the extremely low valuations for UK shares. That was enough to keep the sellers at bay for a time, but by the last day of the month there were signs of capitulation even for this sector too.”

The Covid-19 respiratory virus has now infected more than 93,000 people globally and killed in excess of 3,200. Its spread out of Asia caused global stock markets to post some of their biggest weekly declines since the global financial crisis last week.

Several large investors have dialled down their exposure to risk assets as the virus continues to advance, while there has been record volumes of trading across Europe’s exchange traded funds sector.

Central banks, including those in Italy and Japan, have moved to reassure markets they will act to limit the impact of the virus. On 3 March,  the US Federal Reserve made an emergency cut to interest rates, while the Bank of England is working closely with the Treasury and the Financial Conduct Authority, the regulator, to “ensure all necessary steps are taken to protect financial stability and monetary stability”.

Michael Metcalfe, head of global macro strategy at State Street Global Markets, said: “While interest rate cuts can do little to combat the potentially immediate economic shock of the virus, it can boost animal spirits in financial markets and help alleviate a potentially negative spiral between the real economy, financial markets and back into the real economy.”

Jon Adams, senior investment strategist at BMO Global Asset Management, added: “We are encouraged to see the Fed step in to support the market, especially considering the equity sell-off and credit weakness that occurred during the previous week.

“However, rate cuts are a blunt instrument not well suited for an issue as complex as the Covid-19 outbreak we are currently experiencing. An accommodative Fed is one important piece of the policy response to help support markets but the economic boost will be limited.”

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« Last Edit: March 04, 2020, 09:57:15 AM by jinga nation »