Record Investor Exodus from Global Equities Driven by Tax Uncertainty and Fears of AI Bubble

Investors have withdrawn an unprecedented volume of capital from stock funds amid speculation over impending tax increases and heightened concerns regarding possible overvaluation in the artificial intelligence sector. October saw a net outflow of £3.6 billion from stock funds globally, setting a record for that month, according to data from Calastone, a leading network servicing investment funds.

This marks the fifth consecutive month of capital outflows from equities, the longest such streak since the aftermath of the Brexit referendum in 2016. UK-focused funds alone experienced a net withdrawal of £1.2 billion during October. Since June, investors have removed £3.7 billion from UK equity funds and £7.3 billion from all types of funds, underscoring widespread unease in the sector.

Concerns surrounding the severity of government tax rises, and uncertainty as to which levies the Chancellor, Rachel Reeves, may target in the upcoming budget, have contributed substantially to this capital flight. The Treasury is reportedly considering significant changes to the capital gains tax regime, including a possible exit tax on profits realised by investors residing in the UK who then leave the country. Speculation persists that capital gains tax rates could be aligned with income tax, prompting many investors to sell assets before potential policy changes to avoid higher future tax liabilities.

The prospect of a correction in the valuations of major technology companies in the United States has further contributed to market nervousness. The so-called Magnificent Seven group of US technology stocks experienced their worst collective week since the introduction of US tariffs in April, as scepticism over the durability of the artificial intelligence boom intensified among market participants.

Approximately half of the funds withdrawn from equities in October found their way into safer vehicles, such as money market and fixed income funds. Calastone reported a record £955 million influx into money market funds and £589 million into fixed income products, signalling a clear preference for lower-risk assets amid prevailing uncertainty. Edward Glyn, head of global markets at Calastone, noted that investors are motivated both by apprehensions regarding global equity pricing and concerns over the future UK tax landscape.

Predictions suggest that the Chancellor could announce tax increases totalling as much as £30 billion, breaking prior manifesto pledges on income tax, though a reduction in national insurance contributions may help offset some of these rises. Reeves has also indicated a potential end to the two-child benefit cap, signalling a broader reshaping of fiscal policy at the upcoming budget.