Global capital flow is undergoing a major shift! Stock allocation ratio plummets, "cash is king" sweeping in

According to the financial news app Zhitong Finance, the global fund manager survey report released by the Wall Street giant Bank of America (BofA) on Tuesday showed that institutional investors have increased their cash asset allocations since August due to the lowest global economic growth expectations in eight months and rising concerns about a U.S. recession. They have significantly reduced their long positions in stocks. According to the Bank of America survey, 31% of respondents stated that they increased their stock holdings in August, far below the 51% in the same period in July, with their average cash asset allocation accounting for 4.3% of their managed assets, higher than the 4.1% a month ago.

Bank of America attributed this significant shift to the weak U.S. non-farm payroll data in July, the unexpectedly rising unemployment rate, and the stock market volatility related to the rebound of the yen exchange rate. Following the release of the non-farm payroll data and the unemployment rate, the Nikkei 225 index experienced its largest single-day decline since 1987.

Market participants also pointed out that the sharp rebound of the yen exchange rate and the significant reduction in leveraged arbitrage trading by many speculators as the yen appreciated were among the main reasons behind the sell-off.

In addition, the total assets of U.S. money market funds have reached a historic high, mainly due to the rush of investors towards cash seeking safe havens earlier this week, especially during the "Black Monday" global risk asset sell-off wave. According to the latest statistics from the Investment Company Institute (ICI), approximately $52.7 billion flowed into U.S. money market funds in the week ending on August 7, marking the largest weekly inflow since the week ending on April 3. Total assets increased from $6.135 trillion last week to $6.19 trillion.

Money market funds invest in short-term, highly liquid financial instruments such as short-term government bonds, commercial paper, and bank deposits. Due to the high liquidity, extremely low risk, and price stability of these funds, they can meet investors' demands for immediate redemption. Money market funds are often seen by investors as cash equivalents that can be quickly liquidated. These funds are a common choice for investors seeking safe havens during market volatility and for short-term cash management needs.

During "Black Monday," the value of global stocks and other risk assets plummeted, attracting a significant amount of risk-averse capital into the money market fund market. The Japanese stock market experienced record declines for two consecutive days before rebounding on Tuesday. "Black Monday" led to a sharp drop in global stock markets, mainly due to the unexpected rise in the U.S. economic recession expectations caused by the rising unemployment rate in recent days. The accelerated rise of the yen exchange rate prompted rapid unwinding of global arbitrage trades, forcing some traders to sell large amounts of high-liquidity stocks such as U.S. tech stocks to offset the huge losses incurred from borrowing yen, leading to a massive sell-off of risk assets and creating a vicious cycle of selling in the entire financial market on Monday However, in recent trading days, global stock markets, including the Japanese and American markets, have been accelerating their rebound under the push of buying on dips. However, the gap from the historical high set in July is still very obvious. This may mean that some institutional investors are still insisting on taking advantage of the market turmoil to "buy low" and expect to buy on dips for short-term gains.

Bank of America stated that 189 surveyed global fund managers manage approximately $508 billion in assets and responded to the survey. A net 47% of respondents expect the global economy to weaken or soften in the next 12 months, a decrease of up to 20 percentage points from July.

However, 76% of respondents indicated that they still expect a "soft landing" for the global economy, where a "soft landing" refers to a gradual slowdown in the economy, rather than a more dramatic "hard landing" or "no landing" scenario—where "no landing" means that economic growth will not slow down at all.

Bank of America stated that this belief "is strongly driven by expectations of the Fed lowering interest rates," as 93% of respondents expect short-term rates to rapidly decrease within 12 months, with short-term rates still hovering at their highest levels in the past 24 years.

The survey by Bank of America also found that as many as 60% of surveyed investors expect the Fed to cut interest rates four times or even more in the next 12 months.

In Japan, the allocation of funds in the stock market saw the largest single-month decline since April 16. Institutional investors shifted from a net increase of 7% in July to a net decrease of 9% in August, marking the first net decrease in Bank of America's survey since July 2023