With the rapid changes in the geopolitical situation in Russia and Ukraine, and the market worries about the US economic recession after the Federal Reserve raised interest rates for the first time, the market fluctuates violently, it is difficult for risk aversion to cool down, and all kinds of funds around the world have also begun to adjust frequently recently. Investors are rearranging.

In terms of ETF flows, US financial, bond ETF and European-focused ETF were abandoned, while gold ETF was favored and emerging market ETF was also favored.

Fears of recession shrouded in

The financial sector was sold off

More and more investors are worried that the Fed's aggressive interest rate hike to reduce inflation will trigger a recession, market sentiment is pessimistic, and money is beginning to "withdraw" on a large scale.

In the week from April 4 to April 8, money fled ETF assets sharply, with an outflow of nearly $11 billion, according to ETF.com. In weeks, it was the second outflow of ETF assets this year and the highest since the Evergrande crisis in mid-September.

Specifically, there were simultaneous outflows of US equity ETF and fixed income ETF, with equity ETF outflows of $13.6 billion and bond ETF outflows of $4.8 billion.

And the financial sector is the "hardest hit area". More than $2.5 billion flowed out of the $42 billion financial sector ETF Financial Select Sector SPDR Fund in the week from April 4 to 8, according to data compiled by Bloomberg, making the ETF the largest weekly outflow since June 2020.

Us fixed income ETF, especially bond ETF, was also hit hard. The 10-year yield rose 20:00 from April 4 to April 11, with iShares iBoxx dollar investment grade corporate bond ETF being the biggest loser among fixed-income ETF products with an outflow of $1.3 billion, followed by SPDR Bloomberg high-yield bond ETF with an outflow of about $940 million, according to the data.

After the conflict between Russia and Ukraine broke out at the end of February, the market worried about the exposure of financial institutions to Russia and the consequences of sanctions, and the flattening of the US bond yield curve also reduced the net interest margin of banks, and the income of investment banks plummeted. More and more investors are worried about the possibility of a recession in the United States.

Bank of America Corporation's strategist warned at Michael Hartnett that the macroeconomic situation is deteriorating rapidly and could push the US economy into recession as the Fed tightens monetary policy to curb surging inflation. "inflation shocks are worsening, interest rate shocks are just beginning, and recession shocks are coming," he wrote. In this case, cash, volatility, commodities and cryptocurrencies may outperform bonds and stocks. "

Goldman Sachs Group's survey of 1500 institutional investors in early April also showed that 54 per cent of the respondents expected inflation to remain above target until at least 2024 and expected a recession in 2022 or 2023, meaning the market expected Fed policy to trigger a "hard landing", while inflation would fall only after a hard landing.

Anti-inflation + risk aversion property is very popular.

Gold ETF inflows hit a record high in March

Inflation-resistant and safe-haven gold has once again staged the return of the King, with global safe-haven funds buying gold through ETF.

According to the latest report released by the Global Gold Council, the global gold ETF recorded a net inflow of 187.3 tons, or $11.8 billion (about 75 billion yuan) in March, the highest in nearly six years. Net inflows into global gold ETF rose fivefold in March from a month earlier, surpassing the previous peak of $9.4 billion in July 2020, according to BlackRock.

On a regional basis, net inflows were recorded in all regions of the world during the month, mainly led by increased positions in North American and European funds. Asian regional funds had a net inflow of 2.6t, or $166 million, in March, with China funds being the main driver. Wind data show that China's largest gold ETF-- Huaan Gold easy ETF received an inflow of 1.422 billion yuan in March, with the latest scale exceeding 12 billion yuan.

SPDR Gold ETF (SPDR Gold Shares), the world's largest gold index fund, which is seen as a bellwether of gold's medium-and long-term trend, has recorded an influx of more than $3.8 billion since March, according to Yahoo Financial data. As of April 14, SPDR Gold ETF reached $68 billion (about 4300 billion yuan), with a position of 1104.42 tons.

In addition, the price of gold has also maintained a rising trend. The main contract for COMEX gold futures fluctuated around $1974.90 an ounce, up 1.5 per cent this week (four trading days).

Societe Generale believes that as economic risks rise, investors should choose to hold commodities, half of which should be invested in gold. Jeffrey Gundlach, chief executive of DoubleLine Capital and the US "debt king", also said that gold would provide a good protection against purchasing power and expected gold prices to rise sharply.

Guotai Junan analysis pointed out that from a long-term perspective, gold prices will fall with the rise of real interest rates, but recently the relationship between gold prices and real interest rates began to show a positive correlation trend. As a result, gold still has upward momentum after the start of the Fed's interest rate hike cycle. In addition, central banks around the world are on the rise in favor of gold. Central banks choose the allocation of gold is more inclined to allocation, risk aversion and other purposes. Under the current influence of de-dollarization and geopolitics, the trend of dollar substitution will be good for gold and other currencies.

Capital flight from the European stock market

Emerging markets are popular

Under the uncertain situation in Russia and Ukraine, global investor enthusiasm for the European market has waned, risk aversion has risen, and capital has begun to flee.

Outflows from European stock markets totaled $1.6 billion in the week to April 6, the eighth consecutive week of net outflows, according to Bank of America Corporation. Outflows from iShares, an European stock listed in the region of Europe, the Middle East and Africa (EMEA), reached an all-time high of $5.5 billion, according to Blackrock, almost offsetting inflows of $6.1 billion earlier this year.

"Russia / Ukraine means a bigger 'inflation shock', a smaller 'interest rate shock' and a bigger 'recession shock'," Hartnett said.

With the escalation of sanctions in Europe and the United States, relations between Europe and Russia have deteriorated at an accelerated pace, and markets are beginning to worry about a recession in Europe. The European Central Bank estimates that due to the impact of the epidemic and the conflict between Russia and Ukraine, the real GDP growth in Europe in the first quarter was only about 0.2%. This year, economic activities in the euro area still face great uncertainty and continue to be affected by the situation in Russia and Ukraine. Economic growth in the second quarter may pick up, but the growth rate is still limited. At the same time, the European Central Bank also lowered its economic growth forecast for this year and next, predicting euro zone GDP growth of 3.7% in 2022, a reduction of 0.5 percentage point, and GDP growth of 2.8% in 2023, a reduction of 0.1 percentage point.

Geraldine Sundstrom, portfolio manager of Pacific Investment Management, told the media that at this stage, the risk of recession in Europe is much higher than that in the United States, and Europe is also facing very significant supply shocks and inflation shocks.

Ross MacDonald, an analyst at Morgan Stanley, said the outlook for return on investment in European stocks is becoming more challenging as the risk of recession looms. "We don't think European stocks as a whole or any of them have digested expectations of a recession. The continuing risks surrounding oil and gas supplies mean that a recession in Europe is much more likely than ever before. "

In contrast, emerging market equity funds received the largest capital inflows in 10 weeks, reaching $5.3 billion, according to EPFR, a capital flow tracker. Of this, iShares MSCI emerging Markets ETF inflows were $1.1 billion, the largest inflow of its kind of ETF. Vanguard FTSE emerging Markets ETF and iShares core MSCI emerging Markets also attracted a combined $1.12 billion inflows.

Emerging market debt instruments also attracted $2.2 billion, the best week since last September. Specifically, Latin American markets received the largest net inflows in March ($10.8 billion), with net inflows to equities and bonds roughly equal. Rising commodity prices and low valuations have attracted investors to bet on commodity exporters such as Brazil.