International investors are actively reducing investments in equity funds

International investors are actively reducing investments in equity funds. According to Emerging Portfolio Fund Research (EPFR), more than $21 billion was withdrawn from such funds over the past week – the maximum amount since December 2022. Investors are taking profits after the Christmas rally as they are not confident that growth will continue in early 2024. Russian investors are also reducing their investments in stocks, shifting funds to deposits and money market funds, whose yields have risen following the key rate of the Central Bank.

The latest EPFR data shows a decline in international investor demand for risky assets. According to Kommersant’s estimates, based on a Bank of America report (taking into account EPFR data), for the week ending December 20, clients of all equity funds withdrew more than $21 billion, the strongest outflow since December 2022. A week earlier, the result was positive – an inflow of $25.6 billion. In total, since the beginning of the year, international investors have invested $147 billion in such funds. This is almost 30% lower than the result for the same period in 2022.

The withdrawal of money from all categories of funds was likely due to technical reasons and traditional profit-taking at the end of the quarter and year, notes Oleg Novikov, investment director at Astero Falcon. Moreover, in recent months, the world’s leading indices have shown significant growth.

Since the end of October, leading American indices have grown, according to Investing.com, by 14–16%, while the Dow Jones index was able to update its all-time high, reaching 37.56 thousand points last Tuesday. Leading European indices grew during the same time by 11–14%, French and German stock indicators, as well as the CAC 40 and DAX reached historical highs. This was facilitated by both the traditional Christmas rally and expectations of the completion of the cycle of raising the key rate by the US Federal Reserve.

Investors are cautious about the prospects for 2024, and therefore prefer to reduce the share of risky assets in their portfolios. Investment strategist at Arikapital Management Company Sergei Suverov draws attention to the ongoing discussions about a potential recession in the American economy and risks in connection with the presidential elections in the United States. In addition, the conflict in the Middle East continues.

“Against this background, investors are shifting to cash; in the category of bonds, there may be flows from bonds to more profitable corporate issues,” notes Mr. Suverov. According to Oleg Novikov, in the first half of 2024, in the absence of new growth catalysts, bonds and money market instruments will show stronger dynamics than stocks and equity funds.

Russian investors have been actively reducing investments in stocks for several months in a row. According to Kommersant’s estimates, based on data from Investfunds, over the three weeks of December they withdrew 1.45 billion rubles from the ten largest equity funds by assets (which account for almost 60% of all assets of funds in this category), which is comparable to the volume of funds released in November.

Experts say the key reasons are the lack of growth in the stock market (since the beginning of autumn, the Moscow Exchange index has decreased by 5%, to 3292.58 points) and the increase in the Central Bank key rate in December by 100 basis points. p., up to 16%, since July it has grown by 850 bp. n. In response, deposit rates are also rising. As a result, private investors are actively increasing investments in deposits and money market funds (see Kommersant on December 11).

In 2024, managers expect a restoration of interest in Russian equity funds, as they are confident that the Central Bank will not be able to keep the key rate at a high level for a long time. “If there is a sufficiently rapid slowdown in inflation, the regulator will lower the rate and we will see an influx of investment into equity funds,” notes Eduard Kharin, head of the Alfa Capital equity directorate.

Moreover, the market still has potential for growth. According to the head of the sales department of Management Company Pervaya, Andrei Makarov, next year the growth of the Moscow Exchange index could be about 30%, of which 20% will come from rising quotes and about 10% from dividend yield. The market, the expert believes, will be supported by growing demand, redomiciliation of companies and dividend payments.

Vitaly Gaidaev