The coronavirus pandemic has prompted investors to dump riskier assets and build up their biggest cash stockpiles since the September 2001 terror attacks, according to a closely watched poll.
The average amount of cash held by investors jumped to 5.9 per cent of assets under management in April, the latest Bank of America fund manager survey showed. That is up from 5.1 per cent at the last reading in March, and well above a 10-year average of 4.6 per cent.
The US Federal Reserve has tried to ease nerves through a range of interventions in bond markets and the offer of an extra $2.3tn in credit for small businesses and municipalities. Such actions have helped to steady stock markets while giving a lift to various classes of fixed-income assets.
But investors have headed for safer ground as widespread lockdowns shut large parts of the global economy to contain the coronavirus outbreak, which has infected more than 1.9m people worldwide and killed more than 120,000.
“Cash and the US dollar have been ‘safe havens’,” said Michael Hartnett, chief investment strategist at BofA Global Research, who authored the report. “Investors were slow to realise the Fed had put out the inferno in investment-grade credit and commercial paper markets so hoarded cash in recent weeks.”
A sell-off in equities saw the S&P 500 benchmark tumble 34 per cent in late February and March, retreating from all-time highs. It has since rallied 23 per cent, however, as a slowdown in the spread of the virus coupled with unprecedented fiscal and monetary stimulus fuelled optimism among investors.
BofA analysts expect April to mark “peak pessimism”, with cash balances receding next month.
However, the vast majority of the fund managers polled — 93 per cent — believe there will be a recession in the next 12 months. This is higher than the previous peak when 86 per cent predicted a recession during the 2008-09 financial crisis.
Only a small minority of respondents said they expected a rapid recovery, with just 15 per cent of fund managers saying they expect a V-shaped rebound. More than half — 52 per cent — expect the recovery from the viral outbreak to be U-shaped, implying a period of close-to-zero growth.
Mr Hartnett noted that while credit markets have seen rapid recoveries over the past few weeks, economic forecasts have not done likewise because virus curves have flattened only modestly, unemployment has jumped and weaker corporate earnings have not yet materialised.
The S&P’s bounce from late March has left it about 18 per cent off its record highs, but many analysts expect the recovery to be shortlived, as stimulus efforts fall short of sustaining the US economy in the face of another wave of coronavirus infections.
The poll covered 207 managers with a combined $597bn in assets under management.