Buy Any China Decline, Low Likelihood Of Sweep In US Election Good For Stocks: BofA By Investing.com

Investing.com — Last week saw ample flows to all asset classes, but China led the way with the third-largest equity outflows in 2024, Bank of America revealed on Friday. Year-to-date, equity funds are now tracking $700 billion in inflows, the second-highest ever.

For the week ended Oct. 10, equity funds attracted $39.7 billion. Emerging markets saw a record inflow of $40.9 billion, with China contributing $39.1 billion, the largest on record.

In contrast, Japan saw the highest outflow on record at $8.8 billion, while India saw its first outflow since June 2022 at $200 million. Tech funds saw their biggest inflow in four months, pulling in $7.4 billion.

Meanwhile, bond funds saw inflows of $17.5 billion, marking the 50th consecutive week of inflows for investment-grade (IG) bonds, which attracted $9.5 billion.

High-yield bonds (HY) added $400 million, the ninth consecutive week of inflows, while Treasuries saw inflows of $4.5 billion, resuming after a brief hiatus. Municipal bonds extended their streak to 15 weeks with inflows of $1.1 billion, and emerging market debt drew $1.2 billion for the fourth straight week.

Inflation-protected Treasuries (TIPS), however, saw their biggest outflow since December at $1.3 billion, while bank loans had their biggest inflow in five months at 1. 4 billion dollars.

Cash inflows were also strong, coming in at $16.7 billion. Gold attracted inflows of $500 million, while cryptocurrencies saw $300 million.

BofA strategists noted that while traders are aggressively buying Chinese stocks, allocators remain skeptical of a major turning point, especially with the U.S. election looming.

The team said it would “buy any dips in China” and policymakers suggest capital markets will be “aggressively used to boost spirits and demand for domestic animals”. BofA also expects upward revisions to China’s GDP forecast from 4.6% and higher bond yields to drive higher asset allocation in the country.

On politics, the bank points out that the latest poll shows a close race between Donald Trump and Kamala Harris, with Trump holding a slight lead of 53 percent to Harris’ 47 percent. More important to Wall Street, however, is the low and steady probability — around 30 percent — of a “sweep” by either party, meaning a single party controls both the presidency and Congress.

That eased investors’ worries that the election could “trigger higher inflationary rates, lower taxes, lower immigration and therefore higher bond yields and lower stocks,” strategists said.

Regionally, US equity inflows rebounded with $2.7 billion, while Europe posted a second week of outflows, losing $1 billion. Emerging market stocks continued to be strong, marking the 19th consecutive week of gains.