US election fears spur dash for cash

Rising anxiety among global investors propelled the swiftest weekly surge into cash since 2013 as money managers drove the longest sell-off in the benchmark S&P 500 since the financial crisis.

The world’s largest national equity index rose 0.4 per cent by midday in New York after shedding 2.9 per cent over the prior eight trading days, recording its longest string of declines since 2008 as the US presidential race between Hillary Clinton and Donald Trump has tightened and spurred rising market volatility. Money market funds, a proxy for cash, absorbed more than $36bn in the week to November 2, according to fund flows tracked by EPFR.

Equity markets in Asia and Europe declined yesterday. European equity benchmarks have outpaced this week’s decline in the S&P 500, with the Euro Stoxx 600 plumbing its lowest level since early July.

“Part of what we are seeing is the manifestation of uncertainty playing out in markets,” said Jim Sarni, managing principal at Payden & Rygel Investment Management. “The assets people perceive as being the riskiest are seeing people pull back . . . I look at these near-term outflows and think it is people taking chips off the table to keep powder dry in case opportunities arise following the election.”

The scrambling of positioning has pushed the Vix index – a measure of implied equity volatilityknown as Wall Street’s fear gauge – to its highest level since the aftermath of the UK’s vote to leave the EU. Other gauges of skittishness – Bank of America Merrill Lynch’s index of implied Treasury volatility and the implied volatility in the euro-dollar currency pair – hit three-and-a-half-month highs on Thursday.

Selling over the past week was concentrated in low-rated corporate credit strategies and US stocks, with the latter seeing $3.5bn of outflows. High-yield bond funds suffered redemptions of $4.1bn over the past week, the biggest withdrawal so far this year. Redemptions from US stock funds have passed $92bn this year.

Havens have benefited from the resurgence in volatility, with US Treasury funds gaining $2.3bn over the past five trading days – the largest inflow since the first week of July. Gold funds received $205m of fresh cash in the past week, a period that saw the metal rise to its highest level in a month.

While the tightening in the US election has sparked short-term concerns, investors have also been troubled by potential threats on the horizon, said Dan Suzuki, an investment strategist at Bank of America Merrill Lynch. “We think there’s a lot to be concerned about,” he said.

Hopes that members of oil-producing cartel Opec, along with other major crude exporters, will agree to cut output at a meeting scheduled for later this month have cooled.

The price of US crude oil, which slid 1.5 per cent yesterday to $44 a barrel, has fallen 14.7 per cent after closing at a high of $51.60 in mid-October.