Rising risk aversion drove the biggest outflows in 11 weeks from world stocks and emerging debt over the past week, alongside a sharp increase in cash allocations, Bank of America Merrill Lynch (BAML) said on Friday.
Data from BAML, which tracks fund flows from Wednesday to Wednesday, said the week had seen $5.6 billion exit world equity funds, with U.S. stocks accounting for $2.3 billion outflows while emerging market equities lost a "notable" $1.2 billion.
European equities lost $1.4 billion, seeing outflows for 26 of the past 27 weeks, BAML said, describing the moves as the "September pain trade."
This month's intensifying market tensions coincide with the tenth anniversary of the Lehman Brothers collapse which sent world markets and the global economy into a tailspin.
Another casualty of risk-off sentiment was emerging market debt, which saw outflows of $1.6 billion -- the largest in 11 weeks.
Investors' appetite for riskier assets has been hit hard by the simmering trade conflict between the United States and China, as well as turmoil in emerging markets where some currencies have lost 40-50 percent of their value this year.
That has sparked a dash for government bonds from developed countries which saw inflows of $1.7 billion, according to BAML.
Markets are also long on cash -- a typical sign of risk aversion -- the data showed. BAML said its clients' allocation to two-year Treasury bills, a proxy for cash, was at the highest since Sept 2008.
Still, there could finally be some positive signs for battered emerging markets. BAML said this year's combo of price capitulation and hefty flows had sparked big market rallies in eight out of nine occasions since 2009.
"Nineteen of 23 emerging market indexes are now big oversold but we need $11 billion emerging market equity outflows (this week to confirm the signal)," BAML said in the note.
A larger-than-expected hike in Turkish interest rates on Thursday and hopes of new round of talks to reduce trade tensions between the United States and China have boosted markets as this week draws to an end.
MSCI's emerging market stock index was up more than 1 percent on Friday.
Commenting on the anniversary of the Lehman collapse, BAML said one of the biggest trends since the crisis was the $2.5 trillion of inflow into passive funds, compared to $2 trillion outflow from active ones.
Bond markets have been another big winner, BAML said, noting flows of $2.2 trillion into bonds versus $0.7 trillion into equities since 2009.
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