By Elizabeth Howcroft
LONDON (Reuters) - British investors put more money into equity funds than any month since April 2021, although most of it went to U.S. equity funds as they continued to pull cash from local stocks, data from fund network Calastone showed on Wednesday.
UK flows into equity funds rose for three months in a row, hitting 2.01 billion pounds ($2.53 billion) in January, Calastone said, in a turnaround from October when UK investors pulled 1.2 billion pounds out of equities overall.
January's net equity fund inflows were driven by a record 1.4 billion pounds' worth of flows from UK investors into U.S. equity funds.
World stocks have risen in recent months as investors bet that major central banks will cut interest rates in 2024 - even as U.S. Federal Reserve Chair Jerome Powell has pushed back against the idea that the central bank could cut rates as soon as March.
"The markets are convinced that disinflation will bring rate cuts earlier and faster than previously expected, especially in the U.S.," said Edward Glyn, head of global markets at Calastone.
"This has driven an equity market rally, particularly among the U.S. tech stocks whose share prices benefit most from lower bond yields."
Funds focused on Europe saw inflows of 471 million pounds, their third best month on record.
But UK-specific funds saw outflows of 673 million pounds, as investors have pulled cash from UK equity funds every month since June 2021, Calastone said.
UK investors yanked 8 billion pounds from British stock funds last year, after pulling out 8 billion pounds in 2022 and 1 billion pounds in 2021.
"The doom and gloom over the UK stock market seems firmly lodged in investors' minds. UK equities are exceptionally cheap by historic and international comparisons, but buyers are nowhere to be found," Calastone's Glyn said.
Asia-Pacific-focused funds were dragged down by negative sentiment around China and saw net outflows for the ninth month in a row, of 211 million pounds, Calastone said. China's stock markets have been tanking as the economy struggles with its post-COVID recovery.
($1 = 0.7957 pounds)