Investors pour the most into cash since COVID in latest week – BofA

LONDON (Reuters) – Investors poured more money into cash funds in the week to Wednesday than at any time since the depths of the pandemic in 2020, a report from BofA Global Research showed on Friday.

Cash funds saw inflows of $68.1 billion, BofA said citing EPFR data. As per previous flow reports from the bank, this is the largest influx into cash since a $126.4 billion inflow in the week of April 24 2020.

Global shares hit two-month lows while bond yields surged in the latest week, as investors assessed a raft of data that has reinforced the belief that interest rates aren’t going to peak any time soon and no cuts will materialise this year.

Investors ditched equities and gold, which tends to suffer in an environment of rising real interest rates.

Describing inflation as a “secular reality” rather than a “cyclical theme”, the BofA analysts hailed the end of an “era of extraordinary monetary policy”.

In light of higher inflation and higher interest rates, they note cash will be “as good as bonds & stocks” until the bear market comes to an end with an expected credit event.

Such a credit event could originate from the “Anglo-Saxon real estate” sector which has been hit by higher rates, the BofA analysts wrote.

The bank pointed to U.S. mortgage applications being at their lowest since April 1995, while house prices in the United States, the UK, Canada, Australia and New Zealand were either falling or stagnating.

They advise long-term investors to buy assets considered “solutions to society’s problems” such as infrastructure, inequality and climate change, but also to buy assets that lost out under the zero-rate environment such as value stocks, banks and European assets.

Bonds saw inflows of $8.4 billion, while global stocks recorded outflows of $7.4 billion and investors pulled $900 million out of gold funds.

Investors meanwhile shed $1.8 billion in emerging market debt and bought $2.4 billion in emerging market equities.

BofA’s bull and bear indicator – a measure of market sentiment – ticked up marginally to 4.3 from 4.2 the previous week.

(Reporting by Lucy Raitano; Editing by Amanda Cooper and Shounak Dasgupta)