Here are some more interesting charts.
And they worry Citigroup’s lead strategist Robert Buckland because they could create the next mania - an emerging markets bubble.
Over the last four months we have seen large outflows from traditional safe havens including money market funds. Much of this money has flowed into riskier credit and equity funds. Within equities the biggest flows are going into Emerging Markets. So far this year inflows to Emerging Market equity funds have returned more than half of the outflows we saw in 2008.
While flows have been strong we think that bubble talk is premature. However, the combination of sound macro fundamentals in Emerging Markets, a relatively attractive corporate earnings outlook and, most importantly, abundant easy money suggests we have the ingredients for a potential bubble.
As Buckland notes, on some metrics the global economy has never had as much money being pumped in.
Our measure of global money supply suggests M0 has grown by more than 10% in the last year. This is close to the fastest growth rate we have seen since 1980.
Central banks have lowered policy rates to the lowest level in over 25 years. Real rates are also at historic lows and have been negative for three quarters now (Figure 22). Central bank rhetoric and our economists’ forecasts suggest we will be in an era of exceptionally easy policy at least until the second half of next year, perhaps longer.
Related links:
Funds flow out of money markets - FT
Flows into emerging market equity funds hit 18-month high - FT Alphaville
