in June, investors sharply reduced the share of cash in portfolios

Global portfolio managers have sharply reduced the proportion of cash in their portfolios over the past month. This was facilitated by confidence in the inevitability of raising the ceiling of the US national debt, as well as reduced fears about a banking crisis. The accumulated cash went to buy shares of American companies.

A June survey of portfolio managers by Bank of America (BofA) analysts shows a sharp drop in the share of cash in investors’ portfolios. The average share of cash dropped from 5.6% to 5.1%, the biggest single drop in eight months. The number of managers with a portfolio cash ratio above the indicative level turned out to be 31% more than those with a lower indicator. Over the month, the indicator decreased by 13 percentage points (p.p.).

Such actions of managers are associated with a decrease in fears of a relative banking crisis and expectations of an agreement on the US national debt ceiling. From the very beginning, market participants noted that the absence of an agreement and a full-fledged default on US government bonds are unlikely (see Kommersant of May 17). According to Mikhail Bespalov, an analyst at KSP Capital Asset Management, the negotiators on both sides understood that the consequences of this event could have a very serious and unpredictable effect on the markets and the economy. As a result, an agreement was reached, and on June 3, the US President signed a law on raising the national debt ceiling. As a result, this risk ceased to be significant for the market.

In contrast to default risk, concerns about a banking crisis have subsided, but not completely gone. In June, 22% of respondents called this risk a key one for the global economy with unpredictable consequences. A month earlier, every third manager had this opinion. “If rates remain at a high level for a long time, problems for individual small and medium-sized banks are not ruled out, but the market probably believes that this risk does not threaten the system as a whole, and the risk management of large players in the industry is built at the proper level,” notes Mr. Bespalov.

As a result, after a three-month break, high inflation and tight monetary policy of financial regulators returned to the first place in the list of concerns. This opinion is shared by 36% of the surveyed managers. In third place with a share of 17% is the deterioration of geopolitics.

Reduced risks in the US economy had a positive effect on investors’ attitudes towards US stocks. The number of portfolios in which investments in such shares were below the indicative level was only 25% higher than the number of those in which the share was higher. Over the month, the indicator fell by 14 percentage points. At the same time, since the beginning of the month, the S&P 500 index has risen by almost 5%, to 4831 points, the highest since April last year.

At the same time, managers reduced investments in shares of European companies and companies in developing countries. “Unlike the Fed, from which everyone is waiting for dovish signals, the ECB, on the contrary, is waiting for a rate increase, which may also explain the less attractiveness of European stocks compared to the United States,” said Maxim Vasiliev, chief analyst at Trinfico Management Company.

In emerging markets, investors are worried about the uncertainty about China’s economic recovery. “Against the backdrop of a potential recession, the global banking crisis and increased geopolitical tensions, investors still prefer investing in the world’s largest economy,” says Konstantin Asaturov, Managing Director of Equities at Sistema Capital.

Fears of a recession, which negatively affect the price of oil, have a limited impact on the Russian market amid large dividend payments. On Wednesday, July 14, the Moscow Exchange Index reached its highest level since February 22, 2022, reaching 2786.55 points. Since the beginning of the year, the growth has been 28%. “Support for the shares of Russian commodity companies is primarily provided by the weakening of the ruble, which formally increases the ruble revenue of our exporters,” says Maxim Vasiliev. On the other hand, increased geopolitical risks limit the scope for further growth. “We do not expect strong growth in the Russian market,” notes Konstantin Asaturov, predicting “neutral dynamics in the short term.”

Vitaly Gaidaev