Against the backdrop of rising expectations for the Federal Reserve to raise interest rates and continuously high long-term rates, smart money is accelerating its concentration in emerging markets, tech stocks, and commodities, while maintaining caution towards U.S. domestic stocks and UK stocks. As of the week ending July 22, emerging market stocks saw a net inflow of $29.6 billion, making it the second-largest weekly inflow in history; Chinese stocks had a net inflow of $21.3 billion, setting a record for the third-largest weekly inflow in history.

Written by: Bu Shuqing, Wall Street Journal

Fund flow data shows that global investors are undergoing a profound asset reallocation.

According to the Wind Trading Platform, Bank of America's latest "Fund Flow Report" reveals that amid rising expectations for the Federal Reserve to increase interest rates and continuously high long-term rates, smart money is accelerating its concentration in emerging markets, tech stocks, and commodities, while remaining cautious about U.S. domestic stocks and UK stocks.

As of the week ending July 22, global stock funds experienced a net inflow of $30.4 billion, bond funds a net inflow of $14.9 billion, gold funds a net inflow of $2 billion, while money market funds saw a net outflow of $33.9 billion.

Among them, emerging market stocks had a net inflow of $29.6 billion for the week, the second largest weekly inflow ever; Chinese stock funds recorded a net inflow of $21.3 billion, setting a historical record for the third-largest weekly inflow; South Korean stocks accumulated a net inflow of $16.3 billion over the past four weeks, also setting a historical record.

Meanwhile, Bank of America's Bull & Bear Indicator remains in the extremely optimistic range of 9.6, with sell signals continuing to be effective since triggered in May 2026. Bank of America's strategist Michael Hartnett warns that strong inflows into tech stocks are hedged against hedge funds' increasingly bearish positions in oil prices, 2-year U.S. Treasury bonds, VIX, and other directions, with market sentiment currently at historical highs, and investors need to be wary of potential triggers for the deleveraging of risk assets.

Emerging Markets Are the Biggest Winners, Record Inflows in China and South Korea

Emerging markets are becoming the biggest beneficiaries of the current wave of global fund reallocation.

Data shows that emerging market stock funds had a net inflow of $29.6 billion for the week, the second highest in history; they have recorded net inflows for three consecutive weeks.

Chinese stock funds saw a net inflow of $21.3 billion for the week, making it the third-largest weekly inflow in history. South Korean stock funds had a net inflow of $1.5 billion for the week, and a cumulative net inflow of $16.3 billion over the past four weeks, setting a historical record. From the asset return rankings year-to-date, South Korean stocks top global markets with a rise of 79.6%.

Bank of America strategists in their report listed Hong Kong real estate stocks as "long-term buy opportunities," indicating that the Hang Seng Hong Kong Real Estate Index is currently equivalent to prices from 30 years ago, with limited downside potential. As the financial environment in China stabilizes, the long-term rise of Asian tech sectors, and the arrival of a new bull market in emerging markets and real estate, this sector is expected to see significant gains in the second half of the 2020s.

Bank of America stated that they will buy any dips triggered by the Federal Reserve tightening policies or by currency crises in Japan.

Record Inflows into Tech Stocks, But Warning Signals Are Up

Tech stocks remain the core direction for institutional fund chasing.

Over the past four weeks, tech stock funds experienced a cumulative net inflow of $52.8 billion, setting a historical record; for the week, there was a net inflow of $4 billion. Financial stock funds had a net inflow of $1.5 billion for the week, with a cumulative net inflow of $8.8 billion over the past four weeks, the largest four-week inflow scale since January 2022.

However, Bank of America also issued warnings.

The report points out that the leading indicator of the industrial cycle—the "blue collar semiconductor" index—has dropped 21% from the June peak, challenging the market's generally expected narrative of "economic prosperity." Meanwhile, the MAGS ETF, representing the "big seven tech giants," is struggling to maintain support at the 200-day moving average (at $65).

Bank of America strategists suggest that in the event of a reversal in "prosperity" expectations, the best trading strategy is to go long on defensive sectors, high-dividend stocks, and duration assets while shorting bank stocks (which are currently experiencing substantial inflows), brokerage stocks, tech stocks, and industrial stocks—among which the investor overweight in industrial stocks has reached the highest level since July 2021.

Bond Market Undercurrents, Long-Term Rates as the Biggest Variable

The bond market is sending signals that cannot be ignored. The yield on the 30-year U.S. Treasury bond has risen to 5.2%, the highest since June 2007; the 30-year real yield has reached 3%, the highest since November 2008; and the prices of U.S. tech corporate bonds have dropped to their lowest point in two years.

Nonetheless, funds continue to flow into the fixed income market. Investment-grade bond funds have seen net inflows for 16 consecutive weeks, with a net inflow of $5.9 billion for the week; government and treasury funds have recorded net inflows for four consecutive weeks, with a net inflow of $5.7 billion for the week; inflation-protected bonds (TIPS) have seen net inflows for 25 consecutive weeks.

The Bank of America report indicates that since 2026, global central banks have raised interest rates 23 times, and Bank of America expects another 18 rate hikes within the year.

The market's implied probability of a rate hike at the Federal Reserve's FOMC meeting on July 29 has risen to 38%, and the September 16 meeting has fully priced in one rate hike. The report believes that the tightening of financial conditions has impacted the market more than corporate profits, and the continuous rise of long-term rates is a potential trigger for the deleveraging of risk assets. Moreover, going long on the dollar is the best tool to hedge against the Federal Reserve's hawkish stance.

Gold and Cryptocurrencies Quietly Bottoming, Commodities Leading the Year

In the alternative asset space, gold and cryptocurrencies are quietly accumulating funds. Gold funds had a net inflow of $2 billion for the week, the largest weekly inflow since April 2026; cryptocurrency funds recorded a net inflow of $900 million, the largest weekly inflow in 11 weeks.

From the year-to-date asset return rankings, commodities lead with a gain of 57.7%, Brent crude oil rose 54.6%, WTI crude oil rose 51.2%, and copper rose 10.9%. In contrast, gold has decreased by 4.4% since the beginning of the year, and Bitcoin has decreased by 24.8%.

Bank of America characterizes the current trend of gold and Bitcoin as "2026 bottoming," providing explanations from a macro structural perspective: the U.S. government still maintains a fiscal deficit of about $2 trillion, paying about $1 trillion in interest each year, despite tariff revenues reaching $250 billion over the past 12 months; meanwhile, increasing supply of stocks (companies with negative free cash flow reducing buybacks) and expanding supply of bonds both constitute long-term support logic for gold and Bitcoin.

The report believes that in the second half of the 2020s, banks representing "Main Street" (BKX) will outperform brokerages and private equity, which represent "Wall Street."

Private Clients Quietly Shift to Defensives, Cash at Historical Lows

The asset allocation trends of Bank of America's private clients are also noteworthy.

As of the latest data, Bank of America's private client managed assets total $4.5 trillion, with stocks accounting for 65.6%, bonds 17.5%, and cash 9.6%—the cash ratio has fallen to the historical lows of May 2026.

From the ETF fund flows over the last four weeks, private clients are buying defensive assets such as municipal bonds, consumer staples, and healthcare, while selling materials, low volatility factors, and Japanese stocks. This shift in allocation contrasts sharply with the large inflow of institutional funds into tech stocks and emerging markets, reflecting the differences in risk appetite among different types of investors in the current market environment.

Data from Bank of America's Bull & Bear Indicator shows that hedge fund positions are at the 82nd percentile (extremely optimistic), stock fund flows at the 96th percentile (extremely optimistic), and fund manager survey positions at the 100th percentile (extremely optimistic). Bank of America points out that since 2002, 17 sell signals have been triggered, and the ACWI index averaged a 2% to 3% decline in the following 2 to 3 months, with maximum drawdowns of 15% to 20%, and an accuracy rate of about 60%.