Investors storm into “value trades” as broader equity exuberance fades

FILE PHOTO: The bull, symbol for successful trading, is seen in front of the German stock exchange in Frankfurt
FILE PHOTO: The bull, symbol for successful trading, is seen in front of the German stock exchange in Frankfurt, Germany, February 12, 2019. REUTERS/Kai Pfaffenbach/File Photo

August 13, 2021

By Saikat Chatterjee

LONDON (Reuters) -Investors have made a beeline into so-called “value trades”, adding cash into European stocks and financial and material shares during the past week, BofA’s weekly statistics showed on Friday, keeping the region’s markets on a record-breaking run.

At $1.5 billion, Europe saw the biggest inflow in eight weeks while financial stocks saw a chunky $2.6 billion of inflows, the largest in 10 weeks, the U.S. investment bank said.

European stocks hit new highs on Friday and looked set to extend gains for a record tenth straight session.[MKTS/GLOB]

“We say own defensive quality in second half,” said Michael Hartnett, BofA’s chief investment strategist

The renewed interest in relatively cheaper sectors of the market came at the cost of the familiar market darlings including technology stocks which saw their smallest inflows in seven weeks.

Materials and financials stocks are considered relatively undervalued currently as they are perceived to be still suffering from the pandemic-induced economic downturn. But analysts believe their fortunes will turn if larger economies continue to recover.

Global equity funds enjoyed inflows of $15.7 billion as private clients of the U.S. investment bank holding $3.2 trillion in assets increased their allocation to stocks to a record high of 65%.

Market participants say the single most important factor for them is what the U.S. Federal Reserve will do next as it looks to gradually roll back emergency pandemic measures, but inflation data this week has been fairly confusing for market watchers.

BoFA noted the cost of shipping a 40-foot box container from Shanghai to Rotterdam has jumped to $14,000 from $2,000, 18 months ago.

Factory-gate inflation is popping higher in the United States, China and Japan, the note said. That is squeezing many firms’ profit margins and raising the risk of a followthrough jump in consumer prices.

Data on Thursday showed U.S. producer prices posted their largest annual increase in more than a decade in the 12 months through July, adding pressure on the Fed to reduce stimulus at its next policy meeting in September.

(Reporting by Saikat Chatterjee; Editing by Tommy Wilkes and Kim Coghill)