$6.5 Billion Pulled Out of Stock Funds Worldwide

NEW YORK (Reuters) – Investors in funds worldwide pulled $6.5 billion out of stock funds in the latest week because of the extended U.S. government shutdown and concerns over the debt ceiling, data from a Bank of America Merrill Lynch Global Research report showed Friday.

The outflows from stock funds in the week ended October 9 were the largest such outflows in five weeks, according to the report, which also cited data from fund-tracking firm EPFR Global.

Funds that hold U.S. stocks stood out with outflows of $10.3 billion, the largest in seven weeks as the Standard & Poor’s 500 index fell 2.2 percent on the shutdown and fears that Congress may not raise the U.S. debt ceiling by October 17.

U.S. Treasury Secretary Jack Lew has said the United States will exhaust its $16.7 trillion borrowing authority no later than that date.

Money market funds had outflows of $23 billion in the week ended October 9, marking the biggest outflows from the funds in four months, data from the report showed. Some investors fear that money market funds are particularly at risk of a potential U.S. default on its debt.

The latest outflows from money market funds, which are typically low-risk vehicles that invest in short-term government securities, brought total outflows from the funds this year to $114 billion, according to the report.

As a sign of worry about the potential U.S. debt default, yields on short-dated bills maturing in the next few weeks rose sharply on Tuesday. The Treasury sold $30 billion in four-week bills at 0.35 percent, the highest yield since October 2008.

Global stock markets suffered over the weekly period, with the MSCI world equity index dropping 1.7 percent, but funds that hold international stocks attracted new cash over the week.

European stock funds reaped $700 million in inflows, marking the 15th straight week of new demand despite the FTSEurofirst 300 index’s fall of 1.8 percent over the period.

Japanese stock funds had inflows of $1.1 billion, marking their fifth straight week of new demand despite a 0.9 percent decline in Japan’s Nikkei average.

While stock markets overall suffered over the week, emerging market stocks gained, with the MSCI emerging market equities index rising 0.8 percent. The report showed that emerging market stock funds took in small inflows of $100 million in the latest week.

Investors pulled $1.8 billion from bond funds worldwide over the week, the report showed. Funds that hold government securities – mainly U.S. Treasuries – had outflows of $900 million in the latest week, down from big outflows of $2.7 billion the prior week but marking the funds’ fifth straight week of outflows.

Investment-grade bond funds had outflows of $800 million, reversing inflows over the previous two weeks. Riskier high-yield junk bond funds attracted $1.1 billion in new cash, however, marking the fifth straight week of new demand for the funds.

Emerging market bond funds had outflows of $500 million in the latest week, up from outflows of $200 million the previous week.

Investors also pulled $200 million from precious metals funds worldwide, marking the fourth straight week of outflows from the funds. The spot price of gold was down almost 1 percent on Wednesday at $1,307 an ounce, after hitting a 1-week bottom at below $1,300.