By Harry Robertson
LONDON (Reuters) -Inflows into global equity funds hit their highest level in 35 weeks in the week to Wednesday, according to a report from Bank of America (NYSE:BAC) (BofA), as investor optimism brightened.
Investors poured a net $22.9 billion into equities, BofA said, citing EPFR data, and $4.2 billion into bonds. They pulled $3.7 billion from cash funds and $300 million from gold.
The pick-up in flows followed data last week which showed that U.S. inflation cooled more than expected in October, prompting a dramatic rally in global stocks and bonds.
Investors hope that slowing inflation will allow the U.S. Federal Reserve to let up on its aggressive interest rate hikes, which have punished equities and fixed income this year.
U.S. equity funds saw inflows just shy of $24 billion in the week to Wednesday, BofA said.
European stocks remained unloved, however, with outflows continuing for the 40th week in a row, in what BofA said was the longest run on record.
In the fixed income market, investors pulled $1.3 billion from investment grade corporate bond funds. But they ploughed $3.7 billion into high-yielding debt, which is issued by companies with weaker credit ratings.
BofA analysts, led by Michael Hartnett, said in the weekly note they reckon the first half of 2023 will be good for bonds and the second half - when central banks are likely to begin cutting interest rates - can benefit stocks.
They said the Fed is only likely to start to "pivot" towards cutting rates around June or July, which could unleash a "big bull trade".
Stocks and bonds surged following last week's U.S. inflation print. The U.S. S&P 500 rallied 5.5% on Thursday, while the yield on the 10-year U.S. Treasury note, which moves inversely to the price, dropped 32 basis points.
Bank of America's "bull and bear" indicator rose for the first time in nine weeks, but remained in "extreme bearish" territory at 0.4.
Money flowed into emerging market (EM) equities for the fourth week running, at $1.9 billion. Yet investors pulled money from EM bond funds for the 13th week.
Resources stocks saw their largest inflow in 23 weeks, at $500 million.