This week saw the first outflows from emerging market debt and equity funds since October 2018, Bank of America Merrill Lynch strategists said on Friday, citing EPFR data.

Emerging market stocks have had a strong run since the end of 2018 and pulled in flows of $18 billion in 2019 so far, but were named the “most crowded” trade in a BAML survey last week, which may be a bad omen.

In the week to February 20, EM equity funds saw $0.5 billion outflows and EM debt funds lost $39 million.

Overall flows showed a creeping risk aversion from investors facing a slowing global economy, critical trade talks between the United States and China, and sliding earnings expectations.

Bond funds drew inflows of $4.6 billion while equity funds lost $12.7 billion, BAML strategists said.

Data showed US equity funds suffered a 12th straight week of outflows, with investors pulling $4.3 billion from the region.

For the S&P 500 to reach new highs at 2,950 points requires “green shoots and greed”, BAML strategists said, adding that as it stands few in the market forecast an earnings acceleration.

BAML’s “Bull & Bear” indicator of investor positioning and sentiment rose to 4.9, a neutral level.

“Bar corporate bonds ... we are far from ‘greed’,” strategists said.

Credit drew inflows again this week with $2.3 billion going into investment-grade bond funds and $0.5 billion flowing into high-yield bond funds.

The “irrational contrarian” trades

Outside the United States, Japanese equity funds saw $1.1 billion in outflows, their biggest in six months, while $3.9 billion left European equity funds.

In sectors, investors continued to shun those most sensitive to the economic cycle, pulling money from energy, tech, and financials funds.

“Today’s rational trade is consensus trade,” strategists said, pointing to corporate bonds, EM assets, US stocks, growth stocks and defensive stocks with yield.

“We say be an irrational contrarian,” they added, recommending investors stay long and buy commodities, Europe, Japan, value stocks, and cheap cyclicals.