Spooked Investors Pull Out of Financial Sector

(May 21, 2012)  —  Outflows from financial equity funds hit their highest level since the collapse of Lehman Brothers last week as fears of a Eurozone break up and incidents in the banking sector fuelled a crisis of confidence, data has shown.

Investors around the globe pulled a combined $910.7 million from financial sector funds, according to data monitor EFPR. These were the highest since the first week of October 2008, and the immediate aftermath of the investment bank collapse.

The back drop to these outflows was a $2 billion trading loss incurred by JP Morgan – the details of which are yet to be fully disclosed – and significant deposits being pulled from Greek and Spanish banks over fears of their sovereign’s security.

Commentary from EFPR said: “With a leaderless Greece seemingly circling the drain leading to exit from the Eurozone, investors spent the second week of May looking for asset classes and countries that offer some degree of protection if the currency union begins to unravel.”

EPFR global-tracked Japan equity funds and Germany equity funds both attracted over $750 million during the week ending May 16; defensive sectors healthcare and biotechnology funds posted their biggest inflow since late October and US bond funds absorbed over $4 billion for the fifth week in a row, EPFR said.

However, despite this lack of confidence in the banking sector, short-sellers have not yet started circling, according to Data Explorers, a Markit company.

Data from the firm showed Banco Santander, the Eurozone’s biggest bank by market capitalisation, has only 0.37% of its shares outstanding on loan. This is a much smaller number than the average 4.2% of stock on loan for the rest of the Spanish IBEX.

In Italy, which along with Spain saw most of its major banks downgraded in the past week, major financial institutions experienced lower levels of shorting than the general index. As an example, Unicredit, one of the country’s largest banks, and no stranger to tough times of late, only has 1.2% of its shares outstanding out on loan, compared with an average of 5.6% for Milan’s FTSE MIB index, Data Explorers said.