How $5 Trillion Took Fright at Overseas Stocks

(Bloomberg Opinion) -- Global stocks took a beating in the fourth quarter of last year, with the MSCI World Index losing almost 14 percent of its value. Figures just released by the U.K. Office for National Statistics show British asset managers led the charge out of the market.

The data cover insurance companies, pension funds and other investment trusts that between them oversee about 4 trillion pounds ($5 trillion) of assets. The scale of their collective exodus in the final three months of 2018 was staggering.

The ONS says this is the first time it has recorded four consecutive quarters of net disinvestment. The main driver of these withdrawals were funds dumping overseas equities at the fastest pace in more than half a century.

Between them, insurance companies and pension funds offloaded 60 billion pounds of overseas shares in 2018, the most since the ONS began collecting the data in 1963.

Bonds benefited from this flight to safety, with net investments in gilts reaching 15 billion pounds last year despite 400 million pounds of outflows in the final quarter. Purchases of corporate bonds totaled roughly 2 billion pounds in the fourth quarter, matching flows into domestic shares.

That preference for domestic stocks and bonds marks a reversal of a trend that’s seen insurers and pension funds shun them in favor of their overseas equivalents for almost every quarter in the past five years. Since 2013, the average quarterly disinvestment has averaged about 5 billion pounds, according to the ONS.

But with the MSCI World Index outpacing both the domestic FTSE 350 Index and the FTSE 100 benchmark in the first few months of this year, British investors will hopefully have reversed their retreat from overseas shares. Otherwise they will have only brought their money home in time for a Brexit bonfire.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

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