LONDON, Feb 24 (Reuters) – Global investors have allocated $354 billion to cash since Russia’s invasion of Ukraine first shook global financial markets in February 2022, according to data released by Bank of America on Friday.
The rush to cash is a sign of the profound economic uncertainty triggered by Russia’s invasion, which sent energy prices and global inflation soaring.
The price shock forced central banks to hike interest rates, clobbering stock and bond markets in the process.
Since February 2022, investors have pulled $135 billion from bond funds, BofA said, citing figures from financial data company EPFR. Meanwhile, they have put $40 billion into equity funds but pulled $12 billion from gold.
“The war in Ukraine started only a few weeks before the US led the developed market global hiking cycle,” said Jim Reid, a strategist at Deutsche Bank, in a note to clients on Friday.
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“So although the backdrop for the bond sell-off was already in place with the extreme COVID stimulus, it wasn’t until the central banks started hiking that the bond dam broke.”
One of the most common ways for investors to allocate their money to cash is by putting it into money market mutual funds. They invest in cash and cash-like securities such as short-dated U.S. Treasuries.
Investors have become more positive at the start of 2023, especially about bonds, even as the Ukraine war drags on.
Flows into bond funds continued for the eighth straight week last week, BofA said, at $4.9 billion. That was the longest streak since November 2021.
Equities saw outflows of $7 billion, although they remained solidly positive for the year.
An improved economic picture in Europe and the United States is cheering some investors, although others remain nervous that central banks still look far from finished with rate hikes.
Reporting by Harry Robertson; Editing by Amanda Cooper