Global equity markets continued to attract significant capital in February, yet beneath that headline strength Barclays strategists say investors are reallocating amid growing worry that rapid AI-driven disruption could have deflationary consequences.
Barclays, in a note authored by a team led by Emmanuel Cau, reported $101 billion of global equity inflows in February - the largest monthly total since November 2024. The strategists attributed the inflows to resilient growth, improving corporate earnings trends and seasonal patterns that have supported risk appetite.
Buyback activity also looks set to provide additional support; Barclays noted that roughly 80% of announced 2026 buyback programs have not yet been executed, leaving scope for an acceleration in shareholder-return activity later in the year.
Despite the healthy headline flows, Barclays highlighted a cooling of positioning beneath the surface. Hedge funds and systematic investors reduced exposure from what the bank described as January’s elevated levels, and retail investor sentiment shifted toward a more cautious stance. On an aggregate basis, Barclays estimates that equity positioning has eased to the 78th percentile, a level the strategists interpret as markets no longer being stretched.
Central to the cross-asset moves is a change in the AI narrative. Barclays said investors appear to be moving "from enjoying the AI build-out phase... to worrying about fast-growing AI disruption, which may lead to deflation." That shift is prompting flows away from certain risk assets and has lifted demand for fixed income.
Notably, bonds outperformed equities in the most recent period - the first time that has happened since April 2025 - reflecting revived interest in safer, yield-bearing assets. At the same time, flows into high-yield credit and financial-sector stocks have softened, as concerns mount about companies that might become "AI losers" and the knock-on effects for credit markets.
As the strategists put it: "Concerns about more companies falling into the 'AI losers' camp and getting out of business are weighing on credit markets, with waning flows in the HY space and financial stocks." They added that the two competing narratives - one focused on growth from AI and the other on AI-driven deflationary risk - are unlikely to persist side-by-side indefinitely. "Something has to give, and we have more sympathy for the former than the latter, hence our preference for equities over bonds," the note said.
The shift in sentiment is also showing up geographically and across sectors. Barclays sees the latest U.S.-to-rest-of-world reallocation as being driven more by AI-related worries than by currency moves, with investors rotating from so-called "new economy" sectors into "old economy" areas. In Europe this dynamic has translated into stronger flows into defensive and value-oriented stocks, while a de-risking of technology exposure has helped push market breadth to a one-year high.
Looking ahead, Barclays expects continued rotation and elevated single-stock volatility as market participants try to gauge the speed and breadth of AI disruption and its economic impact. The strategists’ view leaves them inclined toward equity exposure over fixed income, while recognizing the near-term coexistence of competing narratives that are reshaping flows and positioning across asset classes.
Note: All figures and quotations above are taken from the Barclays note referenced in this report.