International clients of money market funds withdraw more than $51 billion in two weeks – the biggest outflow since mid-2022

International investors are actively dumping money market funds. According to Emerging Portfolio Fund Research, more than $50 billion has been withdrawn from such funds in the past two weeks. Sales are also taking place in precious metals funds. At the same time, investments in shares of American companies are growing, which is facilitated by the improvement in the economic situation in the country and the pause taken by the US Federal Reserve in raising the rate.

The latest data from Emerging Portfolio Fund Research (EPFR) indicates a decrease in the demand of international investors for defensive assets. According to Kommersant’s estimate, based on a Bank of America report (taking into account EPFR data), in the two weeks ended June 21, money market fund clients withdrew more than $51 billion, the strongest outflow since mid-2022.

In the past four months, money market funds have attracted massive investment, fueled by fears of a banking crisis in the US and Europe, as well as the lack of agreements between Democrats and Republicans on the issue of raising the national debt ceiling. As a result, from February to early June, the net inflow of funds to such funds amounted to more than $830 billion. Investor interest in other protective instruments is also declining. Investments in gold funds decreased by $1.5 billion. The share in cash portfolios is decreasing.

Improvement in investor sentiment is facilitated by both the relief of the banking crisis and the increase in the US national debt ceiling. As a result, hopes for an improvement in the economic situation in the country strengthened in the markets.

Arikapital’s strategist Sergei Suverov notes that in recent weeks the situation in the US economy has improved, the labor market is strong, and inflation has slowed to 4%. “Perhaps market participants jumped to conclusions and preferred stocks to investments in the money market amid expectations that the tightening of monetary policy in the United States is coming to an end, while the risks of a large-scale recession against the background of the Fed’s updated forecast for economic growth in June are not so great, as it seemed before,” says Mikhail Bespalov, an analyst at KSP Capital UA.

The released funds were partly transferred to equity funds, the net inflow of which exceeded $17 billion in the reporting period. At the same time, investors’ investment preferences have noticeably changed. If in previous months the money went mainly to the funds of developing countries, then in June the main beneficiaries were the funds of developed countries, led by the American ones.

According to EPFR, during the reporting period, developed markets funds attracted more than $15.8 billion. At the same time, more than $18 billion were invested in US equity funds alone. in China, which drag all developing countries with them, and in the EU and the UK do not leave many alternatives for investors.

Fueling interest in US stocks is the ongoing hype in US companies in the field of artificial intelligence (AI). Although this topic is promising in itself, but, according to Mikhail Bespalov, it is far from certain that the results from the use of AI will be as fast and significant as the market expects.

Due to the isolation of the Russian stock market, external factors have a limited impact on it. The Moscow Exchange Index has been trading above the 2,800-point level for most of the week, the highest level since February 2022. However, following the results of Friday’s trading, it fell by more than 0.7% to 2795 points, and during the evening session fell by another 2% to 2737 points. This was a response to the growing tension in the country against the backdrop of aggravation of the conflict between PMC “Wagner” and the Ministry of Defense.

Over the weekend, the crisis was localized, so that the further development of the situation on the Russian market will depend on the dynamics of oil prices and the ruble exchange rate, corporate reporting. External factors, Konstantin Asaturov believes, will influence the market when there is news on sanctions or “next geopolitical shocks”.

Vitaly Gaidaev