Caution prevails despite the market bounce

March 14, 2019 11:20
Many US investors have opted to park their cash in money market funds despite the equities rally. Photo: Reuters

The S&P 500 index has rallied around 20 percent in less than three months, marking its biggest climb since September 2009.

It seems the US stock market has regained the growth momentum. However, it’s quite odd that capital inflow into the market shows no signs of picking up.

Bloomberg data shows that global ETFs actually withdrew a net of US$12.44 billion from US stocks as of March 11 this year, versus a net inflow of US$134.5 billion over the last year.

Most investors apparently continue to stay away from US stocks despite the recent rally.

Meanwhile, a leading US money market fund has seen a big spike in its assets under management (AUM). The fund’s AUM hit a nine-year high of US$3.11 trillion as of March 6. The fund has seen a net inflow of US$73.9 billion since late 2018, when the stock market started to rebound.

Despite the stock market strength, lots of investors remain cautious and prefer to park their funds with money market funds.

As such, the stock market could be subject to a big reversal of the currently positive sentiment if more investors choose to be more conservative.

This article appeared in the Hong Kong Economic Journal on March 13

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal chief economist and strategist