Global Investors Seek Safety in Money Market Funds

(Reuters) – Global investors channeled large investments into the safety of money market funds in the week through Oct. 23 due to caution over the upcoming elections in the United States and Japan, as well as shifts in the outlook for U.S. interest rates.

According to LSEG Lipper data, investors accumulated a significant $25.78 billion in global money market funds during the week, marking the biggest weekly net purchase since Sept. 25.

Uncertainties surrounding the U.S. presidential election on Nov. 5, with polls indicating a close race in critical swing states, and the potential risks of Japan's ruling Liberal Democratic Party losing its majority in the parliamentary election on Sunday, boosted demand for low-risk assets.

Mark Haefele, chief investment officer at UBS Global Wealth Management, stated, "We have signaled that investors should expect market volatility in the leadup to the US presidential election, and the S&P 500 was sitting at a record high before recent declines. As Nov. 5 approaches, market sentiment is likely to remain vulnerable."

U.S. money market funds saw a sharp $29.98 billion in net purchases, contrasting with outflows of $11.79 billion in the previous week. Meanwhile, net purchases in global equity funds dropped to a four-week low of $4.2 billion.

Investors sold sectoral funds worth a net $1.59 billion after two successive weeks of net purchases. Notably, they sold real estate, tech, and financial sector funds valued at $725 million, $623 million, and $152 million, respectively.

In contrast, China equity funds were popular for a fourth consecutive week, garnering inflows of about $1.23 billion. Global bond funds attracted investments for the 44th week in a row, totaling $8.98 billion on a net basis, although it is a seven-week low.

Additionally, global short-term and high-yield funds, as well as dollar-denominated medium-term bond funds, attracted notable inflows of $1.6 billion, $1.14 billion, and $1.24 billion, respectively. Investors also purchased $1.6 billion worth of gold and precious metal funds, marking their largest weekly net purchase since January 2022.

Data covering 29,682 emerging market funds showed equity funds received $578 million, achieving their fifth consecutive weekly inflow. Bond funds, meanwhile, drew just $86 million, the smallest amount in ten weeks.