Posted by: Dirk | June 23, 2013

CNBC: the idiocy of following investor sentiment

Markets are in turmoil. Herd behavior drives investors towards this market today only to drive them towards that market tomorrow. The financial press is reporting those trends, and because of this, is not independent from those trends. After all, they emanate information which investors inhale. The resulting reporting shows the idiocy of following investor sentiment. I am sure that this creates a lot of trading which generates fat fees for the banks and investors while the whole is a zero sum game: those fat fees have to be borne by the investors. Compare the two articles published inside 2 months by CNBC.

Fund Investors Leaving US for Emerging Markets

Loath to jump back into U.S. equities for fear of being burned twice, and relatively late in life, many of these investors are seeking new ways to shore up their portfolio and gain income.

It may seem counterintuitive to be “leaving” U.S. assets for emerging markets as a way to gain investment comfort, but fund managers are finding that emerging market stock and bond funds are a destination of choice for more U.S. fund investors.

Investors Pull More Money From EM Funds

Outflows from emerging market debt funds have accelerated for a third week running as investors grow increasingly concerned that the US Federal Reserve is preparing to end its bond buying and erode demand for developing country assets.

Emerging market debt-dedicated funds monitored by EPFR Global, a data provider, suffered investor redemptions of $2.6bn in the week ending June 19 – even before the Fed set out a plan to scale back “quantitative easing” and triggered turmoil in markets on Thursday. The average four-week outflow is now $1.73bn, the largest on record UniCredit analysts noted.

Investors on financial markets must be mad.

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