Investors shift to cash; no equity surrender.

Investors Turn to Safe Haven of Cash Amid Bank Failures and Market Turmoil

In recent weeks, global markets have been rocked by the failure of several US banks and a rout in global banking shares. Against this tumultuous backdrop, investors have flocked to the safety of cash, with the week to March 15 seeing the highest weekly rate of inflows into cash funds since April 2020, according to research conducted by BofA Global Research.

The data, which reflects flows in the days after the collapse of Silicon Valley Bank, shows that cash funds saw a “huge” inflow of $112.7 billion in the latest week, with inflows for the first quarter of 2023 on course to be the highest since the second quarter of 2020, according to BofA.

Meanwhile, equity funds saw a “tiny” weekly outflow of $26 million, and investors pulled $2.3 billion from bonds and put $600 million into gold. Despite this, BofA reported that equity flows had remained unchanged week-on-week, and there was “no equity capitulation.”

The rise in cash inflows has been driven by investor fears that the recent failures of US banks could lead to a domino effect of bank collapses, a credit crunch, and higher unemployment. BofA’s bullish and bearish indicator – a measure of market sentiment – has dropped sharply to 3.5 from 4.2 the previous week, its lowest since January, with BofA citing “weaker credit flows and worsening breadth in stocks”.

However, BofA also warned that emergency borrowing by banks could lead to tighter lending standards, a small business credit crunch, and higher unemployment.

In the fixed income market, there was a “flight to quality,” with $9.8 billion poured into Treasuries – the largest weekly inflow since May 2022. Emerging market debt recorded its biggest outflow since November, of $3.1 billion.

Despite the current market turbulence, BofA maintains that there is no need to panic. The bank’s research team notes that the recent market turmoil has not yet led to an equity capitulation and that they see no signs of a major market correction in the coming months.

Investors looking to protect their portfolios against the current market risks may want to consider reducing their exposure to riskier assets and increasing their allocation to cash and high-quality fixed income securities. Cash is the ultimate safe haven in times of market stress, providing investors with the flexibility to take advantage of buying opportunities as they arise, while also protecting them from downside risks.

In conclusion, while the recent failures of US banks and market turbulence have spooked some investors, those who remain calm and focused on their long-term investment objectives may be able to navigate the current headwinds and come out ahead in the long run. By keeping a diversified portfolio and allocating to cash and high-quality fixed income securities, investors can weather market storms and take advantage of buying opportunities as they arise.#Investors #pile #cash #equity #capitulation