Equity inflows and buybacks strong, says Deutsche Bank

Investing.com — Equity inflows and buybacks remain strong, says Deutsche Bank, as investor positioning in equities has largely been stable over the past two months, even as the saw modest gains.

While aggregate equity positioning is “only slightly above neutral” and has been moving sideways, “inflows and buybacks, the other two elements of our demand-supply framework for equities, have continued to be very strong,” Deutsche Bank analysts said in a recent note.

Inflows into equity funds continued, totaling $39.7 billion, driven by record inflows of $39.1 billion into China funds. Global funds also saw robust gains, with $5 billion in inflows, while US funds attracted $2.7 billion during the week.

In contrast, Japan faced a sharp contrast, experiencing record outflows of $8.8 billion.

Europe also experienced outflows of $1.0 billion, although at a slower rate compared to the previous week.

Sector-wise, technology saw the largest inflows in four months, totaling $7.4 billion, primarily directed toward China Tech funds. Financials recorded inflows of $1.0 billion, marking the first inflows in five weeks. Both Consumer Goods ($0.9 billion) and Real Estate ($0.7 billion) also saw significant inflows for the second consecutive week.

Looking ahead, the volatility premium for the upcoming US election “is likely to keep moving higher as it has in prior elections,” Deutsche Bank notes.

“Across sectors, positioning in bond-like defensives is above average but slipping, and that in cyclicals is edging up slowly from below, while that in Mega-cap Growth (MCG) & Tech remains above average, albeit a lot lower than at the July peak,” it added.

In addition to the strong inflows, buybacks have also bolstered demand for equities, according to Deutsche Bank. 

“With the earnings season now underway, companies will start exiting blackout periods,” potentially leading to further buyback activity.

Meanwhile, bond inflows also picked up last week, reaching a six-week high of $17.5 billion, while money market funds saw another week of steady inflows, totaling $16.7 billion. Broad-mandate and government bonds led bond fund inflows, while inflows to investment-grade and high-yield bonds slowed.