U.S. stocks saw the largest outflow of funds in three months, while Japanese stocks saw the largest inflow of funds in seven weeks.
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The US stock market is experiencing the most significant capital outflow this year, with funds shifting to certain international markets.
On July 3, according to Bloomberg, Bank of America cited EPFR Global data showing that for the week ending July 1, US equity funds saw $17.2 billion in outflows, the largest single-week outflow in more than three months. Meanwhile, Japanese stock markets attracted $1.9 billion in inflows, the largest single-week inflow in seven weeks, making it one of the main beneficiaries of capital reallocation.
One of the backgrounds for this large-scale capital withdrawal is the market's growing concerns over high valuations in AI-related stocks. The Philadelphia Semiconductor Index has plunged 11% over the past two trading days, with chip stocks taking a heavy hit. JPMorgan strategists also issued a warning, stating that the extreme outperformance of US semiconductor stocks relative to AI hyperscale cloud companies has created an unsustainable valuation gap, which they expect will eventually narrow.
US stock outflows accelerate, reversing strong momentum seen at the start of the year
US equity funds performed strongly in terms of inflows at the beginning of the year, but this trend is now reversing. Last week, US equity funds recorded the first net redemption in three months, and this week’s $17.2 billion in outflows further expanded this trend, marking a clear shift in investor sentiment.
Bank of America’s strategy team led by Michael Hartnett highlighted this data in their report, with total stock markets seeing $13.9 billion in outflows for the week.
Doubts over high valuations of AI are an important driving factor for the current US stock pressure. The Philadelphia Semiconductor Index has tumbled 11% in the past two trading days, showing significant selling pressure in the chip sector.
JPMorgan strategists pointed out that the extreme outperformance of US semiconductor stocks versus AI hyperscale cloud companies has resulted in an unsustainable valuation gap, which is expected to eventually revert. This assessment further exacerbates market concerns regarding the reasonableness of technology sector valuations.
As the US stock market sees capital outflows, some international markets become the destinations for these funds. Japanese stocks attracted $1.9 billion in inflows for the week, the largest single-week inflow in seven weeks, showing that investors are actively seeking allocation opportunities outside the US.
In contrast to the overall outflow in stock markets, the bond market attracted significant capital this week. Investment-grade bonds saw $17.2 billion in inflows for the week, while high-yield bond funds recorded $3.4 billion in inflows, the largest single-week inflow in more than a year, indicating that some investors are turning to fixed income assets for defensive allocation while avoiding equity risks.
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