Equity inflows surge to multi-year high, but can it last?

Albert Edwards has had something of a Damascene conversion. The City’s most notorious perma-bear described European equity as a ‘once in a lifetime opportunity’ and ‘unambiguously cheap’.

Speaking last week, he despaired of its intrinsic value being recognised, however.

According to the Financial Times, Edwards said: ‘Solvency, regulatory and asset/liability modelling arguments are forcing institutions into a sub-optimal asset allocation – and one from which they have no intention of reversing.’

In his opinion, repeated equity falls have pushed liability-ridden defined benefit pension schemes, not to exploit pricing signals, but to seek ever more valueless security in sovereign bonds.

While an intriguing take on the pattern of equity ownership over the last five years, Edwards might have been (at least partly) reverting to Eeyore–esque type. Because there are signs that the huge pile of money frozen into money market and bond funds is beginning to thaw and trickle into shares.

‘Thirty-nine billion dollars have been invested in US and global equity mutual as well exchange traded funds during the first 10 trading days of January,’ noted TrimTabs Investment Research chief executive officer Charles Biderman.    

‘Compare that $39 billion 10-day flood of cash with the entire month of January 2012, when less than half of that amount, or $18 billion, flowed into equity funds.

‘Let us not also forget that January 2012 was a very good month for stocks. The S&P 500 rose more than 4%.’

The TrimTabs numbers add to a mounting pile of evidence that institutional investors may be beginning to have a change of heart. While the numbers quoted differ between different research bodies, the overall direction of travel remains the same.

Lipper data suggests that $18.3 billion flowed into US-registered equity funds over the week to 9 January, the fourth largest inflow since 1992, as the US fiscal cliff deal ‘encouraged some investors to put their money to work in the market’, according to Tom Roseen, director of research services
at Lipper.