Piling cash grows in popularity among investors as market volatility rises

Tumbling stock markets from China to Greece mean piling into cash may be the best bet for global investors as a volatile 2018 draws to a close.

That’s according to Dwyfor Evans, head of Asia-Pacific macro strategy at State Street Global Markets in Hong Kong, who says “it’s time to hold cash” after a selloff that began in emerging markets spills over into developed-nation equities.

“Investors have probably taken profit on the very, very easy money-making opportunities that arose in 2017,” Evans said. “When markets get tough, when markets get a bit more risk-averse, it’s logical to see that investors will actually allocate a higher proportion of their underlying assets to cash.”

China’s benchmark Shanghai Composite Index has slumped 20 per cent this year, Greece’s benchmark has tumbled 23 per cent, while the MSCI All-Country World Index of stocks slid to the lowest in more than a year on Tuesday. The sentiment is being punished by higher US interest rates, a US-China trade war and Italy’s budget dispute, among other factors.

CLSA Ltd. also says its time to get more defensive. The company’s New York-based strategist Matthew Sigel said he has sold all his European equity holdings due to concern about rising support for populist politicians and beefed up his cash position.

“Cash now offers positive real yields in the U.S. for the first time in years, which, should the nascent trend continue, correspond with significant equity multiple contractions,” he wrote in a company newsletter obtained by Bloomberg.

Money-market funds -- the equivalent of cash -- are looking increasingly attractive, State Street’s Evans said.

“As an investor, you’d also think to yourself: ‘Well I’m keeping some dry powder on the side so when I do see an opportunity, bang, I can jump on it,”’ Evans said. “There’s an element of protection there now as we head into the fourth quarter.”