State Street says put money in cash as volatility rises

By BLOOMBERG

Sydney • 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 said “it’s time to hold cash” after a sell-off 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 21% this year, Greece’s benchmark has tumbled 23%, while the MSCI All-Country World Index of stocks slid to the lowest in more than a year on Tuesday. 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 said it’s 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 US for the first time in years, which, should the nascent trend continue, correspond with significant equity multiple contraction,” he wrote in a company newsletter obtained by Bloomberg.

Rakuten Securities Australia recommends buying US dollars.

“Probably the safest currency from a global perspective is the dollar,” said Nick Twidale, COO at Rakuten’s Australian unit in Sydney. “The potential for more volatility in other currencies will make them less attractive, especially while we still have a hawkish US Federal Reserve.”

Meanwhile, 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.” — Bloomberg