Expected slowdown causes investors to flee equities

Institutional investors are reducing their exposures to equities as part of an expected global economic slowdown, according to research released by State Street Corporation.

Carlin Doyle, the macro strategist for State Street, said State Street’s cross border equity flows indicated that investors are displaying risk-averse tendencies and abandoning emerging market equities. Indicators are at multi-year lows, which suggests below average growth through next year.

However, the departure from equities is expected to shore up a weak United States (US) dollar, while dropping commodity prices will cause inflation to drop, as well as challenge the strength of the Australian and New Zealand dollar and the South African rand. The Japanese yen may strengthen due to the shift to anti risk currencies, and US investors will move their overseas equities surplus to safer markets.

The global credit crisis will also impact emerging markets, which were most uncontrolled during good times, Doyle said.