February 23, 2018.
United States:
Equity Investors Fleeing Wall Street Are Turning to Europe
Tempted in buying the dip? OK, just maybe not the one in U.S. stocks. While Wall Street is still reeling from its first 10 percent correction in two years, U.S. equity funds continue to suffer outflows, according to Bank of America Merrill Lynch, and the money is resurfacing in Europe. In the week ended Feb. 21, U.S. funds saw redemptions of $2.4 billion, adding to recent record outflows, BofAML said, citing data from EPFR Global. Meanwhile, Europe funds saw inflows of $3 billion, enjoying brisk inflows for a second week in a row. So far this year, U.S. funds have seen outflows of $22 billion, while Europe has seen inflows of $15 billion. And there are plenty of reasons to switch to European equities, which have been trailing for years: much more reasonable valuation levels, the world’s richest dividends while bund yields remain below 1 percent, a booming economy and no interest rate hike on the horizon. While U.S. stocks feel the pinch from U.S. 10-year Treasury yields zooming in on the “pain threshold” of 3 percent, Europe offers investors payout yields close to 300 basis points above those on the German 10-year benchmark bonds. And for investors worrying about frothy valuation levels of U.S. tech stocks such as the “FANG,” be reassured: there’s no such stock in “boring” Europe.
VIX Funds Face Fresh Scrutiny From U.S. Regulators
U.S. regulators are scrutinizing this month’s implosion of investments that track stock-market turmoil, including whether wrongdoing contributed to steep losses for VIX exchange-traded products offered by Credit Suisse Group AG and other firms, several people familiar with the matter said. The Securities and Exchange Commission and the Commodity Futures Trading Commission have been conducting a broad review of trading since Feb. 5, when volatility spiked and investors lost billions of dollars, the people said. Buzzwords to Navigate a Volatility-Led Market Panic: QuickTake Among those looking into what happened are lawyers in the SEC’s enforcement division, which investigates firms for potential misconduct and fines them if it finds violations of securities laws, two of the people said. There is no indication thus far that specific companies, including Credit Suisse, are being probed. The scrutiny puts a spotlight on a small corner of the $3.4 trillion exchange-traded fund industry that lets everyone from hedge funds to mom-and-pop investors engage in complex trading strategies. With losses now piling up, allegations of market manipulation are getting more attention and government watchdogs face questions about why small-time investors were permitted to buy such products in the first place. An SEC spokesman declined to comment, while CFTC officials didn’t respond to requests for comment.
Europe:
Stocks Struggle as Bond Yields Drop; Dollar Steady: Markets Wrap
Stocks in Europe struggled for traction despite a positive Asia session as investors continue to debate the outlook for global central bank policies. Bonds in the euro region’s core gained with Treasuries, while the dollar steadied after Thursday’s drop. The Stoxx Europe 600 Index edged lower as declines in car and auto-parts makers helped offset gains for telecom companies. U.S. equity-index futures climbed. The MSCI Asia Pacific Index rose, underpinned by gains in Tokyo, Hong Kong, Sydney and Seoul. Yields on Treasury 10-year notes fell, though they remain near their highest since 2014. Those on German bunds dropped to the lowest since January. The common currency slipped. Bond investors took heart from an account of the European Central Bank’s most recent meeting, which showed policy makers aren’t yet ready to remove a pledge to expand its asset-buying program if needed. Over in the U.S., traders seem unconvinced by the Federal Reserve’s hawkish tilt, with the market still pricing in less than the three quarter-point rate hikes that officials have signalled as likely this year. Minutes of the Fed’s January meeting indicated confidence the economy is strengthening amid signs inflation is rising.
Asia:
China stocks shrug off seizure of Anbang amid signs of state support
China shares extended their rebound on Friday, shrugging off Beijing’s seizure of high-flying conglomerate Anbang Insurance Group amid signs the government is once again supporting the country’s stock markets after their recent rout. The unprecedented takeover of a major non-state company underscores how far the communist Party will go in its growing campaign to reduce dangers to the financial system after years of break-neck growth. Anbang had violated laws and regulations which “may seriously endanger the solvency of the company”, the China Insurance Regulatory Commission (CIRC) said in a statement, without giving details. Anbang is one of China’s biggest insurance conglomerates. It claims 1.97 trillion yuan ($311 billion) in assets and ranks 139 on the Global Fortune 500 list. But Sun Lijin, an analyst with Pacific Securities, said the government’s takeover “could have rather limited impact on the stock market.” While dramatic, investors believe the move could prevent excessive shocks to the market by giving authorities more room to resolve financial risks related to Anbang and overhaul the firm, Sun added. Insurance industry insiders also said they believed the move had more to do with Anbang’s behaviour than broader systemic risks.T he blue-chip CSI300 index ended up 0.5 percent to 4,071.09 points, while the Shanghai Composite Index gained 0.6 percent to 3,289.02 in a holiday shortened week. Both indexes have rebounded over 7 percent from a low hit on Feb. 9, the depth of a rout triggered by global market turmoil. Investors focused instead on signs that the government has once again stepped in to stabilize markets following the heavy selling early this month and ahead of key political gatherings in coming weeks