Emerging market stock rout continues, but may be time to buy: BAML

By Jamie McGeever

LONDON, Sept 4 (Reuters) - Investors continued to pull billions of dollars out of emerging market stocks in the week to Sept. 2, but the cumulative outflow recently is now so large it is flashing a "buy" signal to investors, Bank of America Merrill Lynch said on Friday.

The $5.2 billion outflow brought redemptions over the last four weeks to $24 billion, or 2.94 percent of assets under management. It (Other OTC: ITGL - news) was the eighth weekly redemption in a row, BAML said, citing flows from data-provider EPFR Global.

This sends a contrarian "buy" signal, the first since June 2013. Back then, emerging market stocks rose 3.8 percent in the subsequent four weeks and 13 percent over 13 weeks, according to BAML.

World markets (Xetra: 4WM.DE - news) have been roiled in recent weeks by turmoil in China's markets and growing unease about the slowdown in its economy.

The $29.5 billion outflow from global equities the previous week, for example, was the largest since 2002, surpassing any weekly outflow engendered by the collapse of Lehman Brothers in 2008.

Last week though, investors dipped their toes back into stock markets for the first week in three, pouring $10.7 billion into global equity funds. That was the biggest inflow in eight weeks, although more than $7 billion of that went into the SPY exchange-traded fund (ETF).

European equity funds attracted $4.2 billion net inflows, the largest in six weeks, and Japanese equity funds drew in $2.3 billion, marking the 26th weekly inflow in the last 28 weeks.

Investors continued to shun emerging market bonds as well as equities, pulling $3.0 billion out of EM bond funds, the sixth outflow in a row. They pulled $900 million from high yield bond funds too, also the sixth consecutive weekly outflow.

Fragile investor sentiment and market conditions sustained the flow of cash into safe-haven government bonds in developed countries. The $2.5 billion inflow into government bond funds was the ninth in a row, marking the longest inflow streak since September 2011, BAML said. (Reporting by Jamie McGeever; Editing by Toby Chopra)