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Stock Inflows Beat Bonds First Time in 10 Weeks, Citigroup Says

Equity funds drew more money than bonds for the first time in 10 weeks as economic data improved and amid optimism that U.S. lawmakers will reach a budget compromise, according to Citigroup Inc.

Stock funds attracted $14.9 billion in the week ended Nov. 28, the second-largest weekly inflows this year, more than the $5.1 billion lured by bond funds, Markus Rosgen and Yue Hin Pong wrote in a report today, citing data compiled by EPFR Global. U.S. funds lured $10.7 billion, reversing an outflow trend, while Asia drew $1 billion inflows, the second-largest this year, the analysts said.

“Most of the economic data have positively surprised, and more people are starting to believe the U.S. fiscal cliff may turn out to be ok,” Pong wrote in an e-mail response to a query. Still, “it would take more time for equities to gain full speed against bonds” given lingering issues in Europe and weak global trade, the analyst said.

A Chinese purchasing managers’ index released on Nov. 21 signaled the first expansion in the nation’s manufacturing industry in 13 months, while figures this week showed consumer confidence in the U.S. rose in November to the highest level in more than four years.

The world economy is in its best shape in 18 months as the U.S. looks likely to avoid the tax increases and spending cuts known as the fiscal cliff, according to the latest Bloomberg Global Poll of investors, which was conducted on Nov. 27. U.S. Treasury Secretary Timothy Geithner offered Republican House Speaker John Boehner a proposal to avert the fiscal cliff, a Republican aide said.

Cyclical Markets

In markets such as Taiwan and South Korea that are most tied to the global economy, exchange-traded funds saw inflows of $250 million and $177 million respectively, according to Citigroup’s report.

Strategists at three of the world’s biggest banks are advising investors to buy Asian equities most tied to economic growth after valuations fell and the global economy showed signs of recovery.

Technology, industrial and materials stocks will climb next year as China’s expansion accelerates and fiscal-cliff concerns fade, Niall MacLeod, a strategist at UBS AG, wrote in a Nov. 28 report. Valuations for cyclical shares are about 40 percent lower than defensive equities, including household-products makers, according to a Nov. 26 note by Morgan Stanley’s Jonathan Garner. An improving earnings outlook will help lure investors, Citigroup’s Rosgen wrote on Nov. 26.

-- Editors: Darren Boey, Ravil Shirodkar

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