Markets see a decline in stock investments due to concerns over potential corrections

Investors have been displaying caution and apprehension towards global equity funds, with August 2023 marking the third consecutive month of outflows. According to Edward Glyn, head of global markets at Calastone, this trend suggests that equity funds are no longer the go-to strategy for investors.

The latest data shows that equity funds experienced outflows of £1.31 billion in August, making it the toughest month for equity funds since the summer of 2022. This follows another £1.13 billion withdrawn in July 2023. In contrast, money market funds gained £633 million, their strongest month in two years.

The outflows are not limited to a specific region. Asia Pacific strategies posted their 28th consecutive month of outflows despite strong performance this year. UK equity outflows eased slightly in August compared to previous months, but the trend remains negative.

Interestingly, demand for bonds increased in August, with investors adding £133 million to fixed income, reversing July's £122 million outflows. However, the asset class of fixed income remains down £628 million year-to-date, weighed by sovereign-bond strategies.

Edward Glyn attributes this trend to concerns over equity prices, with investors seeking safety in money markets. He explains that investors are top-slicing holdings and parking the proceeds in the money markets to wait out the storm they fear. This strategy allows them to remain invested while minimising risk during uncertain market conditions.

The reasons behind the detailed delay in investment outflows into global equity funds in August are not explicitly identified. However, it's worth noting that the outflows in the summer of 2022 were due to a sharp market sell-off, central banks raising rates, the oil shock from Russia's Ukraine invasion, and fears of recession.

Despite the outflows, stock markets in the summer of 2023 are ignoring negative signals and reaching new highs. This dichotomy suggests that investors are adopting a cautious approach to equity investments, preferring to wait for more stable conditions before committing their funds.

Longer-dated yields in the bond markets continue to rise, meaning falling prices. This trend, combined with the uncertainty in equity markets, has led investors to seek safety in fixed income and money markets, at least for the time being. As the market conditions evolve, it will be interesting to see how these trends develop and whether investors' cautious approach will persist.