Date
17 November 2019
US market has outperformed this year, but the accumulative capital inflow is far below the level between 2016 and 2018. Photo: Reuters
US market has outperformed this year, but the accumulative capital inflow is far below the level between 2016 and 2018. Photo: Reuters

US equities outperform but fund inflows not that strong

US equity market has been an outlier so far this year. The ratio of MSCI US and MSCI non-US index hit a record high of 1.496 on July 18, which shows how the US market was outperforming other markets.

Better earnings reports have been a key factor underpinning the US equities.

EPS of MSCI US index has posted a 13 percent growth since the second quarter of last year. By contrast, most other markets like Hong Kong, Europe and emerging markets all have witnessed some sort of profit decline or contraction.

As a result, fund inflows into the US market picked up pace since February this year. By July 19, the stock market has witnessed a net inflow of about US$16.83 billion through US-listed ETFs.

Year-to-date net inflows into non-US equity markets is a bit less than US$8 billion, which is low compared to historical average.

Simply speaking, the US market has outperformed year to date due to strong earnings growth and capital inflow.

Nevertheless, the accumulative capital inflow into US market is far below the level between 2016 and 2018. So, where has the money gone?

As a matter of fact, fixed-income and currency markets have been two major destinations for capital. Debt market has attracted US$50.69 billion through ETF and traditional funds as of July 10, close to the multi-year peak level. Meanwhile, ICI money market fund is now managing US$3.26 trillion, the highest level since 2010.

It shows investors are becoming more risk-averse amid the uncertainty surrounding US-China trade talks and gloomy economic outlook.

This article appeared in the Hong Kong Economic Journal on July 25

Translation by Julie Zhu

[Chinese version 中文版]

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RC

Hong Kong Economic Journal chief economist and strategist