Goldman strategists say funds are switching to non-US assets on weaker dollar, China reopening bets

US equities suffered US$5 billion of outflows in the first two weeks of the year as investors switched to assets in Europe, China and other emerging markets

There is a case for ‘a more meaningful acceleration’ in non-US flows with better returns past the dollar peak

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Traders work on the floor of the New York Stock Exchange during morning trading on January 17. US stocks have suffered US$5 billion of fund outlfows this year. Photo: AFP

Published: 10:00am, 19 Jan 2023Updated: 10:08am, 19 Jan 2023

Equities are kicking off 2023 with a dramatic reversal in trends, with investors flocking to non-US assets, according to Goldman Sachs.

The country’s equities have seen outflows of about US$5 billionjust in the first two weeks of the year, strategists led by Cecilia Mariotti wrote in a note on Wednesday. Lower gas prices, a weaker dollar and optimism about China’s economic reopening have spurred inflows into stock funds of Europe, China and other emerging markets, they added.

“We might be at a turning point for regional equity fund flows,” Mariotti said, adding that there is a case for “a more meaningful acceleration” in non-US flows as “regional diversification has historically proved more valuable past the dollar peak.”

A woman celebrates at Hong Kong’s Lok Ma Chau border checkpoint when China reopens its border on January 8. Photo: Reuters

European equity funds attracted inflows for the first time since Russia invaded Ukraine nearly a year ago, according to Goldman, citing data from EPFR Global and Haver Analytics.

The data is the latest evidence that investors are eyeing opportunities outside the US as recession looms. Moreover, the dominance of expensive growth-linked sectors such as technology in the S&P 500 Index may deter some as interest rates are still rising.

Bank of America’s latest fund manager survey this week showed investors are the most underweight on US equities since 2005. Elsewhere, strategists including those at Citigroup and Goldman have turned more bullish on European stocks as economic growth proves resilient.

Mariotti said a drop in commodity prices and signs of cooling inflation had boosted market optimism more broadly, pushing the bank’s risk appetite indicator into positive territory since the start of the year.