U.S. equity funds witnessed outflows of $30 billion since late June through August 23, 2017, per a Bank of America report citing EPFR Global data. Funds saw investors pulling out $2.6 billion in the 10th consecutive week, the longest stretch since 2004.
The primary reason for these outflows is being attributed to the rising political uncertainty in the United States and growing doubt over whether President Donald Trump will be able to implement his pro-growth policies.
Moreover, despite speculation on developments being made in the tax reform plan by Trump’s administration, his Charlottesville comments, where he stated that both sides were to blame in the protests, was a negative for his approval rating.
Also, Trump’s most-recent comment in a rally in Arizona, where he stated his willingness to shut down the federal government to secure funding for the border wall, has given birth to a new fear in the market.
Investors instead shifted to European and Japanese stocks, the report cited. Treasury bonds have seen inflows in the 10-week timeframe amounting to a record $900 billion. Moreover, the appeal of Japanese investments as a safe-haven investment has recently increased.
Most recently, Kim Jong-Un launched a ballistic missile that passed over Japan as North Korea’s threats come amid increased tensions with the White House. Trump in his response to increasing tensions with North Korea had earlier stated that the threats will be met with ‘fire and fury’, which rattled the markets.
Japanese investors preferring domestic investments in order to avoid being exposed to currency risks have made the yen rally. However, increased geopolitical risks weigh on the markets and getting exposed to any potential target is not a very informed choice. Moreover, the dollar has also been falling lately, owing to uncertainty around future rate hikes by the Federal Reserve.
However, the U.S. economy seems to be in good shape currently. GDP in Q2 grew 2.6% owing to a boost from trade. Strong consumer confidence is also reflective of optimism in the economy, as it hit a 16-year high of 121.1 in July compared with 118.9 in June.
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