Barclays estimates that global mutual funds investors may offload equities worth a further $350bn this year, unless fear of recession declines, according to a report by Reuters.
Investors have been selling equities because of rising inflation. This has forced economies to increase interest rates.
Furthermore, Russia’s military attack on Ukraine also triggered the deepening pressures amid a rise in energy and commodity prices, and growing costs to companies.
According to Barclays, equity outflows made up 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, against 0.3% this year.
This means another $350bn of equity sell-off could happen this year unless recession fears vanish.
In a first since August 2020, mutual funds investors have been the net sellers of equities this month. However, the equity outflows are said to be minimal compared to the record $1.3trn inflows since 2020.
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By GlobalDataBarclays said: “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.”
The bank also noted that the consumer outlook is not likely to improve if the US Federal Reserve continues to be aggressive on monetary policy, although at present income and business fundamentals look supportive.
The US Federal Reserve has pledged to act aggressively by increasing the cost of borrowing.
