There's Little Sign Of Risk Aversion In Market Flows

Authored by Simon White, Bloomberg macro strategist,

Inflows into US exchange-traded funds domiciled abroad have remained supported since the Iran conflict began.

With US stocks holding up remarkably well despite the deteriorating geopolitical backdrop, it’s fair to wonder if they’re perhaps missing something. Overseas investors might be expected to be the most skittish in times of international uncertainty, pulling capital back home or sending less abroad until there is more clarity on the outlook.

However, the largest global buyer of US stocks, Europe, is still on net purchasing them, based on flows to European-domiciled US equity ETFs.

In Asia, demand has tailed off, but has not turned into a net outflow yet.

Somewhat ironically, domestic inflows to US ETFs have morphed into to net outflows on a weekly basis, but the amounts are nothing dramatic, being easily eclipsed by outflows seen only at the end of January.

Flows to Treasury ETFs also indicate a lack of concern. There has been no pick-up in inflows this week, and are much lower than they have been all through this year.

This not a “haven” argument, as the buyers of Treasury ETFs are more likely to be domestics. But it does betray a lack of risk aversion.

Gold ETFs did show a significant outflow. In fact, yesterday saw the largest daily outflow on record, as far as I can see.

This a little curious as it came a day after the gold price fell 4.4%. Perhaps retail was reacting to that move, but even then prices still rose 1% on Wednesday, indicating that $3 billion of ETF outflow wasn’t enough to take the market lower.

Silver ETFs saw minimal outflows yesterday, and Bitcoin ETFs modest inflows.

Gold’s large outflows and a lack of significant movement seen elsewhere indicate this was a liquidation/profit-taking event specific to gold.

All this suggests the market is modestly dialling down risk, rather than jettisoning it, while gold’s move looks idiosyncratic, rather than symbolising any widespread belief that the worst is already over in Middle East.