AUGUST VOLATILITY SPARKS FLIGHT TO SAFETY

Fixed income

iShares fixed income inflows rose 55% m/m in July (+US$21bn), a higher monthly total than the +US$20bn seen in November 2023, after the Treasury Borrowing Advisory Committee’s (TBAC) quarterly refunding announcement showed a change in the composition of Federal government funding away from longer-term debt issuance towards shorter-term funding sources. As was the case in May and June, July fixed income inflows were led by US Treasury flows, although there were strong flows into IG credit (+US$5.1bn) and HY (+US$3.1bn) as well.

The YTD cumulative flows into HY (+US$5.7bn) are particular -ly interesting, given how much stronger it is currently as compared to an equivalent stage last year (-US$928m outflow), suggesting that investors were much more confident around the likelihood of a soft landing in July 2024 than they were a year ago. Indeed, whereas HY experienced 9 months of outflows across 2023, in 2024 it has only experienced 2 months of outflows so far. In a further sign of investor confidence in the fixed income space, fixed income ETF inflows have broadened out to include many more sub-segments within the fixed income market since the start of the year (see graphic below).

Equities

DM inflows hit their second-highest monthly total for the year, reaching +US$20.5bn in July, second only to the +US$26.7bn seen in June. Nearly all the July inflow flowed into US equities (+US$20bn, see pie charts below), while flows into Europe were broadly flat (at just +US$21m).

EM equities saw outflows in July, with outflows from Asia particularly marked. In particular, China equities experience the largest monthly outflow seen in the post-pandemic period, with investors disappointed by the lack of policy support announced at the Third Plenum.