Investors appear to be taking advantage of a risk-on environment shortly after the second market fall of 2018, with inflows into US banks, US tech and Mexican stocks.
Mexico ETFs escape worst of market falls
TrackInsight data showed remarkable daily inflows into exchange traded funds that track Mexican equities, with bumper amounts as high as $132 million on 21 March.
Compared to other equity markets, Mexico only took a small hit during heightened periods of volatility in early February and mid-March. The first spike of volatility, from nine to 37 points, occurred within a few days, and global equities saw a sell-off and pushed most returns into the red after almost a decade of soaring equities, especially in the US.
Year to date, average returns on Mexican ETFs are minus 1.8%. The country could be benefitting from being exempted, alongside Canada, from US President Donald Trump’s recently imposed tariffs on steel and aluminium imports – suggesting Trump’s isolationist stance when it comes to trade will not hurt Mexico too badly.
US banks see inflows
US bank stocks, which also tend to attract cash in a risk-on environment, are also picking up flows. The ETF sector picked up $1 billion on 14 March alone. Since 1 January the volatile sector has delivered minus returns of 0.9%, after a sharp downturn this week.
President Trump’s White House has been pushing to deregulate banks, in effect winding back protections put in place after the 2008 financial crash under former President Barack Obama, but the current President’s plans might be delayed now that Trump’s biggest deregulation advocate, Gary Cohn, has resigned as chief economic adviser.
US tech stocks, which analysts said before the market drops were already overstretched, are back in the black at close to 3% returns year to date. While outflows remain around minus $53 million year to date, inflows might pick up again in parallel with investor confidence.
Meanwhile, US consumer staple stocks have seen cumulative outflows since 1 January of $385 million, another indicator of a returning risk-on environment as investors are generally opting for less defensive sectors.
Investors hope for rally continuation in 2018
Analysts have generally reached a consensus that the market dips do not amount to the popping of the market bubble that some had predicted, and after the US equity market reached multiple record highs earlier this year, ETF investors are perhaps hoping for continued success.