Shivers run through Europe and Japan as supply chains rattle

A damn-the-torpedoes spirit gripped investors during the first week of the New Year.

Faced with bond vigilantes stampeding UK sovereign yields and year-ahead forecasts devoting space to overheated US valuations, the impact of tariffs on inflation and trade, China’s slowing economic growth, rising corporate defaults and the vast borrowing requirements of most leading economies, investors responded in contrarian fashion. They steered over $10 billion into both US Equity and Bond Funds while flows into China Equity and High Yield Bond Funds climbed to four and seven-week highs, respectively.

The first two months of 2024 saw Japan, India, Technology and China Equity Funds absorb a net $5.2 billion, $10.7 billion, $14.1 billion and $44.6 billion, respectively, while US Equity Funds pulled in a minimal $3.4 billion. During the final two months of last year, however, US Equity Funds added $174 billion as they set a new full-year inflow record while flows to the other groups ranged from an outflow of over $10 billion for Japan Equity Funds to an inflow of $2.2 billion for China Equity Funds.

It was a mixed Christmas for the major EPFR-tracked fund groups as technical factors reversed a significant chunk of the previous week’s record-setting inflows to Equity Funds and the sell-off in primary debt markets crimped flows to Bond Funds while Money Market Funds added to their year-to-date total and Balanced Funds posted their biggest weekly inflow since mid 1Q22.