Investors remembered Lehman Brothers

Last week, international investors bought shares of money market funds at a record pace since the pandemic 2020. According to Emerging Portfolio Fund Research (EPFR), non-residents invested $113 billion in such funds, almost five times higher than the previous week. Investors are increasing their investments in US Treasury bonds, as well as gold against the backdrop of a banking crisis in the US and Europe, which could lead to a recession in the global economy and a drop in company profits.

International investors are actively increasing investments in protective assets. According to Bank of America (BofA, takes into account EPFR data), in the week ended March 15, net inflows of client funds into money market funds amounted to almost $113 billion. This is five times more than the previous week and the highest result since April 2020. Since the beginning of the year, funds in this category have raised over $300 billion.

The flight of investors into money market funds occurred against the backdrop of the banking crisis that broke out in the United States, after the failures of Silicon Valley Bank (SVB) and Signature Bank, which also hit other banks.

Investors draw analogies with 2008, when the global financial crisis began with the bankruptcy of Bear Stearns, and the collapse of Lehman Brothers became its apogee. “Now a similar association with SVB and Credit Suisse (up for sale due to financial problems.— “b”), investors are psychologically afraid of the beginning of a new financial crisis,” says investment strategist of Arikapital Management Company Sergey Suverov.

In addition to the increased credit risks of the banking system itself, caused by the exodus of depositors, recessionary risks have also increased. As Yuriy Grossman, portfolio manager at Trinfico Management Company, notes, as a result of the bankruptcy of a number of large and medium-sized banks, the economy will lose a significant part of its liquidity, including loans for business development. For this reason, investors massively reduced their investment in shares. As a result, the leading European indices lost 4-5.3%, the US indices sank by 1.2-4.5% in two weeks. The leaders of the fall were the shares of banks, the MSCI World Financials index lost 6.3% in a week, and more than 12% in two weeks.

According to Yuri Grossman, both a part of depositors and investors who left stock indices could go to money market funds. Interest has grown in other defensive assets such as US Treasury bonds (UST) and gold. Almost $10bn was added to UST funds last week, more than double the previous week’s figure. $0.6 billion was invested in gold funds, against $0.4 billion a week earlier, and the precious metal quotes approached $2,000 per troy ounce (the highest since April 2022).

Due to the isolation of the Russian stock market, external factors have a limited influence on it. The Moscow Exchange Index for most of the week was trading below the closing values ​​of the previous week, but against the backdrop of record dividends from Sberbank, it ended the week with an increase of more than 2% and closed above the level of 2300 points for the first time since September 2022 (see “Kommersant” dated March 17). However, the fall in Brent oil prices to $72 per barrel had a negative impact on the ruble exchange rate – the dollar exchange rate exceeded 77 rubles / $, updating the maximum since April 2022.

According to Sergey Suverov, with the worsening of the financial crisis, the markets may be covered by a new wave of sales of shares, both in the world and in Russia.

A recession in the global economy could lead to lower commodity prices amid reduced consumption. “It is through the raw material channel that a potential financial crisis in the West will have a direct impact on the Russian economy and Russian investors,” says Mikhail Vasilyev, chief analyst at Sovcombank.

However, managers are optimistic, as US and European authorities quickly took steps to provide banks with liquidity. If these measures calm the population, the panic stops and a more serious banking crisis does not happen, Yury Grossman notes, world markets will resume growth, which will also support the Russian market.

Vitaly Gaidaev