Lex: US equities
Published: April 9 2001 19:59GMT | Last Updated: April 9 2001 20:16GMT
Even those diehard optimists, US retail investors, appear to be throwing in the towel. In March, they withdrew $20bn from equity mutual funds, according to fund tracker Trim Tabs. This is the first monthly outflow since September 1998 and the largest, as a percentage of market capitalisation, since October 1987. Considering that technology stocks have been dropping relentlessly for a year, the biggest surprise is that bullishness on main street lasted this long. But the reversal in sentiment is significant, given the degree to which liquidity fuelled the 1990s bull market.
Where is the money going? Not into international equities: US investors have been net sellers of these since last October. Not into bonds: almost $70bn was withdrawn from US bond funds during 2000 and recent "safe haven" buying has been minor. Nor have households been using the cash raised to reduce debt, since new consumer lending has continued to accelerate month by month. The best guess is that they are simply stockpiling cash - perhaps with the intention of moving quickly back into equities once they stabilise. That would chime with research by HSBC, which shows that in three previous market downturns (1987, 1990 and 1998), the trough came just a month after the heaviest mutual fund outflows.
Foreign investors must certainly be hoping so. They purchased a net $170bn of US equities last year. Judging by the dollar's continued strength, they have pulled little, if any, of it back this year. Having come late to the party, they have been left holding the bear. |
