A record rush to big technology stocks saw equity funds bagging $27.8 billion inflows last week with the ongoing ultra-easy monetary policy creating the “mother-of-all asset bubbles”, BofA said on Friday.
Global market capitalisation has risen $50 trillion, or $6.2 billion per hour, since last March, almost 10 times faster than the pace seen in the immediate aftermath of the 2008 global financial crisis, the U.S. investment bank said.
The unprecedented sums of cash thrown by policymakers into global financial markets has swept up mega-cap technology stocks to record highs as investors have chased returns on investments ranging from bitcoin to real assets.
The U.S. Federal Reserve for instance has been purchasing bonds at a record pace, doubling its balance sheet to nearly $8 trillion in less than a year. During the same period, the five biggest tech stocks have seen their market value double.
BofA expects more than a 10% pullback in stocks, which are trading at more than 22 times 12-month forward earnings — the most expensive since the dotcom bubble of the late 1990s.
The bank’s chief investment strategist Michael Hartnett said more stimulus from the U.S. government would lead to an equities “overshoot” and an inflation “overshoot”, which in turn could lead to a correction in markets.
Big tech attracted a record $19 billion inflows in the last six weeks. Bond funds took in $12.6 billion in the week to Wednesday, BofA’s flow data showed.
Outflows of just $300 million marked the largest drawdown in emerging markets debt since July 2020, while emerging market stock funds saw $5.3 billion inflows.
Meanwhile, surging inflation expectations have led to real assets outperforming financial assets so far in 2021, prompting investors to pour $1.2 billion into Treasury inflation-protected securities (TIPS).