HSBC: Global Equity Fund Inflows Surge on China Stimulus, Rate Cuts

HSBC analysts stated Monday that global equity fund inflows rebounded sharply in September, driven by recent rate cuts and China’s significant stimulus measures.

“Global equities are up around 18% in the first nine months of 2024,” HSBC noted, marking the highest returns for this period since the post-financial crisis recovery in 2009.

According to HSBC, global equity fund inflows reached their second-highest weekly level of the year, with $51 billion recorded in mid-September. The positive investor sentiment is primarily attributed to the start of a more accommodative monetary cycle, including rate cuts by central banks like the U.S. Federal Reserve, and China’s pre-holiday economic stimulus.

European Equity Funds See Recovery

European equity funds have seen a gradual recovery, reversing a significant portion of outflows recorded earlier in the year. HSBC predicts that the "positive momentum in fund inflows might continue over the coming weeks," influenced by dovish central bank actions.

UK and Healthcare Sectors Emerge as Investment Focus

The UK has emerged as a favored defensive play for global equity funds, benefiting from a cautious tilt among investors. "Investors seem to have preferred defensive UK equities over more cyclical eurozone markets," HSBC noted. Despite UK equity holdings being relatively high compared to the last five years, they remain below pre-Brexit levels.

HSBC also sees potential for increased allocations to Europe's overseas-focused sectors, which are currently underweighted compared to historical norms. The healthcare sector stands out, with HSBC citing its low relative holdings and an improving consensus outlook.

"We think that the outlook for Healthcare is more supportive as the sell-side EPS momentum has surged recently," the bank stated, particularly when compared to sectors like utilities, which currently have high fund positioning but weaker earnings outlooks.

The easing monetary environment is expected to support cyclical sectors like technology, which may see limited downside risk.