TA Bank of America : Sell Asian Stocks as Foreign Inflows Mount

(Bloomberg) -- Investors should sell Asian equities because foreign buying has exceeded a threshold that previously triggered market declines, according to Bank of America Corp.’s “Asia Flow Trading Rule.” Overseas investors bought $6.8 billion of Asian stocks in the past five weeks, equal to 1 percent of total market capitalization, Michael Hartnett, Jacky Tang and Daniel Casali, strategists at the bank’s Merrill Lynch & Co. unit, wrote in a note dated yesterday.

Investors should sell when inflows over a four-week period surpass 0.6 percent of market capitalization, they said. Markets declined within three weeks on the past four occasions the sell signal was triggered, the analysts wrote.The MSCI Asia Pacific Index gained 11 percent in the five weeks through yesterday, compared with the Standard & Poor’s 500 Index’s 8.6 percent advance. India’s Sensitive Index rallied 24 percent in that period. Still, “any market corrections will likely be mild” as global fund managers are “underweight” equities relative to other asset classes, the report said. Investors who missed out the current rally are “waiting for market pullbacks to buy on dips,” it said.