In the midst of investor caution and global financial meltdown with many economies at the risk of recession as a result of COVID-19 pandemic and the Russia-Ukraine war, global money market funds drew significant inflows in the week ended 30 August, as investors sought safety amid increasing perception that major central banks would maintain elevated interest rates for an extended period.
This is on the back of investors anxiously waiting for U.S. economic data, including inflation and employment reports, for more clues on the direction of the Federal Reserve’s monetary policy path.
According to the Refinitiv Lipper data, global money market funds attracted a net US$5.96 billion in inflows in the final week of August, 2023, compared with about $2.13 billion worth of net selling in the previous week.
Against the backdrop of a surprisingly resilient U.S. economy, the case for an extended period of elevated interest rates has strengthened. This sentiment made investors more cautious ahead of crucial economic data- Thursday’s report on U.S. Personal Consumption Expenditures (PCE) and Friday’s non-farm payrolls figures suggested
However, the Commerce Department’s recent report assuaged some concerns, revealing that the PCE price index, the Fed’s preferred measure of inflation, rose by 3.3% year-on-year in July, meeting expectations.
On a regional basis, the report indicated that investors poured about US$7.29 billion into U.S. money market funds and approximately $291 million into European funds. Conversely, Asian funds experienced net outflows of around US$2.04 billion.
Meanwhile, riskier equity funds recorded a fourth straight week of outflows with about $2.73 billion in net disposals.
According to the data, by sector, financials, energy, and industrials suffered net selling of US$789 million, US$196 million and US$168 million, respectively. The tech sector drew US$822 million in inflows.
Global bond funds received $429 million in inflows, on a net basis, after witnessing $3.86 billion worth of outflows, a week ago.
Moreover, the report stipulated that global high yield funds received a net $1.17 billion, the first weekly inflow in six weeks. Investors also secured about $1.14 billion worth of government bond funds but disposed of $122 million worth of corporate bond funds.
Commodities, Precious Metal Funds Remained Out of Favour
In commodities, precious metal funds remained out of favour for a 14th successive week with a net $419 million worth of outflow, but energy funds drew a marginal $29 million worth of inflows.
Data for 24,223 emerging market funds showed that equity funds booked $1.88 billion worth of net selling, a third weekly outflow in a row. Bond funds also faced disposals, amounting to a net $698 million.
Global Money Market Fund seeks to provide a high degree of safety for the initial investment, together with a return exceeding that from cash deposits in US Dollars/Euro/GBP. In order to achieve this, the fund will invest in highly liquid and top quality fixed income securities as well as money market instruments maturing within 12 months.
Global Money Market Fund is also designed for investors who seek a higher cash return than found in an overseas bank account. It is suitable for risk averse investors seeking no equity exposure.
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