Global Equity Funds Experience Largest Outflows in 30 Months

Global equity markets are currently experiencing their most significant capital flight in over two years, with foreign investors withdrawing a staggering $41.7 billion from equity funds worldwide. This trend, highlighted in the latest report by Elara Securities, marks the largest outflow observed since August 2011.

The sell-off has been particularly pronounced in the US markets, where investors pulled out $35 billion. This is the most substantial weekly outflow since August 2011, coinciding with the downgrade of US debt by S&P. In addition to the US, India has faced its sharpest redemptions since January 15 of this year, with nearly two-thirds of the withdrawals, amounting to $418 million, coming from India-focused active funds. This situation reflects a broader trend, as active funds in India have now recorded five consecutive weeks of redemptions, totaling $362 million.

Market Dynamics and Key Contributors

The recent outflows from India are mirrored by a wave of selling observed in emerging markets, reminiscent of patterns seen after the October 2024 US election when a victory for Donald Trump led to a significant sell-off in emerging economies. Notably, the latest pullback began following the announcement of new US tariffs on April 7, 2024, which initially attracted foreign investment to India but have since been overshadowed by a global risk-off sentiment.

Exchange-traded funds (ETFs) tracking Indian equities have also seen significant withdrawals, with a total of $456 million over the past two weeks. The largest individual outflows were recorded from the iShares MSCI India ETF ($120 million), Franklin FTSE India ETF ($48 million), WisdomTree India Earnings Fund ($45 million), and Schroder ISF Indian Equity ($34 million).

In the US, prominent passive investment vehicles have experienced massive redemptions, including $28.5 billion from the BlackRock ACS US Equity Tracker Fund, $5.6 billion from the SPDR S&P 500 ETF, and $1.7 billion from the iShares Russell 2000 ETF. Analysts attribute this trend to a sharp rebound in the US Dollar Index over the past fortnight, prompting a coordinated capital shift back to the US and UK markets.

Emerging markets have borne the brunt of this global repositioning, with 86% of all EMs experiencing simultaneous outflows. China led the exodus with $723 million in withdrawals, followed closely by India ($632 million), Taiwan ($381 million), South Korea ($155 million), and Brazil ($133 million).

Investor Sentiment and Commodity Trends

Despite the dramatic outflows from equities, the trend towards commodities has been subdued, with only modest inflows into gold totaling $53 million. This represents the slowest pace of investment in gold since June, indicating that investors are not fully rotating into commodities amidst the equity sell-off.

As these market dynamics unfold, investors are urged to stay informed and cautious. The views and investment recommendations shared by experts reflect their personal insights and are not representative of any affiliated organization. Those considering investment decisions are advised to consult with certified financial professionals.