Investment funds withdraw assets to cache at record pace since pandemic amid Iran war

Global investment fund managers are increasing cash holdings at the fastest pace since the COVID-19 pandemic: the war in Iran and risks in the private credit segment are undermining previous optimism, the Financial Times writes.

Average cash holdings in global fund portfolios rose to 4.3% in March from 3.2% a month earlier, the sharpest jump since March 2020, according to a Bank of America survey of global fund managers cited by the Financial Times.

The increase was a significant reversal from January, when cash in funds was at a record low, reflecting investor confidence in economic and stock market growth, the newspaper said.

In addition, the share of investment fund managers predicting an acceleration in global growth fell to 7% from nearly 40% a month earlier; while inflation expectations among them rose to 45% from 9%, the Bank of America survey found.

The survey in question was led by Bank of America strategist Michael Hartnett and surveyed 181 fund managers with about $500 billion in assets under management, MarketWatch writes.

According to the same survey, fund managers agree with the downward trajectory of oil price forecasts: only a tenth of them believe that by the end of 2026, Brent oil prices will be above $90 per barrel. In trading on March 17, Brent is trading at $102.7 per barrel.

Since the beginning of the escalation of the conflict in the Middle East on February 28, stocks and government bonds have fallen in price amid disruptions in oil supplies and rising energy prices, writes the Financial Times. Investors fear this will hit global economic growth and trigger an inflationary shock that will deter central banks from cutting interest rates. "In the short term, there will be little room to shelter from this shock," said BlackRock analysts quoted by the publication.

Robeco's head of global equities strategy, Michil Plakman, said investors are "starting to recognize" the risk of a protracted conflict that would "hit markets," the FT quoted him as saying.

Investor sentiment was further pressured by concerns over the sustainability of the private credit segment, which intensified after the sell-off in the technology sector last month.

On March 16, JPMorgan analysts warned about the risk of a "domino effect" in the markets: if oil prices stay above $90 per barrel, it could trigger a 10-15% drop in the S&P 500 index. According to their assessment, as the price of Brent oil approaches $120 per barrel - sell-offs in the U.S. stock market could accelerate, and the U.S. economy could come under pressure due to rising fuel costs and the so-called "wealth effect", when declining asset values force consumers to cut spending. Even a 10% drop in the S&P 500 could reduce consumption by about 1% and increase the risks of recession, JPMorgan strategists said.

Xi Shah, chief global strategist at Principal Asset Management, meanwhile, said a slowdown in U.S. economic growth could undermine the factors that have supported the stock market. "A lot of people are looking at this geopolitical conflict [with Iran] separately from other topics such as risks in private credit and concerns around AI," she added. - 'But in fact they could be closely linked if the macroeconomic backdrop changes,' the Financial Times quoted Shah as saying."

In trading on March 17, the main U.S. stock indices - S&P 500, Nasdaq Composite and Dow Jones - are in slight plus, adding 0.4%, 0.6% and 0.3%, respectively.

This article was AI-translated and verified by a human editor