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Central banks have regulated cash
Managers of the world's largest funds have sharply reduced the share of cash in their portfolios. This was caused by the Federal Reserve's decision to cut interest rates and announce measures to stimulate the Chinese economy. In the current situation, managers are increasing investments mainly in shares of American and Chinese companies. However, the stability of demand will largely depend on the effectiveness of regulators' actions.
An October survey of portfolio managers by Bank of America (BofA) analysts found a sharp decline in the share of cash in investors’ portfolios. The survey included 231 portfolio managers managing $574 billion. The average share of cash fell from 4.2% to 3.9%, the lowest since February 2021. At the same time, the number of managers with cash in their portfolios below the benchmark was 4% higher than the number of managers with cash above the benchmark. Portfolios were 11% more heavily weighted in cash a month ago.
The decline in the share of cash is due to managers’ heightened expectations about the global economic outlook amid the implementation of stimulus measures in the United States and China, the world’s largest economies. On September 18, US regulators immediately cut interest rates by 50 basis points. This was the first interest rate cut since March 2020 to 4.75-5%. But the cut was twice as large as portfolio managers surveyed by BofA in August had expected. “The Fed’s rate cut is a direct signal that money is getting cheaper and that the US economy seems ready for a soft landing.” This gives investors the green light to buy. Against this backdrop, stocks look much more attractive than bonds or cash, especially in developed markets,” says Alena Nikolaeva, portfolio manager at Astero Falcon.
In addition, the People’s Bank of China announced in late September that it had decided to lower asset reserve requirements for commercial banks by 0.5 percentage points. This measure alone will free up about 1 trillion yuan of liquidity. In early October, Zheng Shanjie, chairman of China’s National Development and Reform Commission, announced that local governments would issue special bonds to support manufacturing. In this situation, the number of managers in China expecting higher growth is 48% higher than those expecting lower growth. In September, pessimists outnumbered optimists by 18%.
In such situations, investors actively use available liquidity to buy shares. According to BofA, the number of managers investing in shares above the index level was 31% higher than those with the index below. The indicator increased by 20 percentage points over the month, showing the strongest movement since June 2020. The growth in equity investments is evidenced by data from Emerging Portfolio Fund Research, which shows that global investors invested more than $108 billion in shares in the four weeks to October 9. At the same time, Chinese funds were the main beneficiaries. The net volume attracted reached almost $62 billion, which is a record high for the entire period of observation. About $38 billion was invested in US funds, which is four times the amount purchased in the previous month. “It is too early to say for sure what structural impact the announced incentives will have on the Chinese economy. This instills hope rather than confidence,” said Anastasia Vlasova, a macroeconomic analyst at Ingosstrakh Investments Management Company.
Despite the isolation of the Russian stock market, optimism about the large economy will have a positive effect, although not immediately. “The easing of the Federal Reserve’s monetary policy generally supports speculative prices for raw materials, which is currently positive for the Russian economy and exporters. But in the long term, a sharp start to a rate-cutting cycle by the Fed usually means that a significant slowdown in economic activity has already begun. The final demand for raw materials on the world market will definitely begin to decline,” Andrey Alekseev tells Portfolio. I am the head of the Pervaya Management Company.
The revival of the economy of China, which has become Russia's main trading partner, will become increasingly important for the Russian market. "The current situation in China allows for the gradual and meaningful creation of incentives for investment cooperation, as well as the establishment of exports of expensive products against the backdrop of the "trade war" declared by Western countries in China," he said. . Anastasia Vlasova.