Wednesday, July 6, 2016

Its time for cash its time for safer assets.

Investors are moving into cautious zone and this is quite evident from the current economic growth and problems of the Euro-zone and global currency volatility. Investors are moving away from risky assets and this time they are more cautious since they have already burnt their fingers several times from 2008 onwards.  Fund Managers are very cautious about their clients and hence their bets are shifting from equities to safe asset class. Liquid holdings have also increased at the same time due to the same risk levels. Its time for cash its time for safer assets.

Equities are becoming less of value of investments currently owing to the global markets. Also at the same time it indicates that inflows into equities are getting low the probability of getting the same back is also very weak. Now lest gets into how much inflows are getting into ETF. Yes ETF is the safest investment avenue currently.
  • SPDR Gold Trust saw biggest inflows in the tune of $1.41 billion, which can be seen as a sign of risk aversion.
  • iShares iBoxx $ High Yield Corporate Bond ETF received inflows of $1.18 billion. This in contrast to the above is a sign of risk affinity.
  • Vanguard S&P 500 index fund received $695.2 million, showing a relatively small preference for equities.
  • VelocityShares Daily Inverse VIX Short-Term ETN saw inflows of $397.3 million, which is a sign of risk affinity.
  • iShares Edge MSCI Min Vol USA ETF received inflows of $372.6 million and it’s a sign of greater risk preference.
Hence its well clear indication that equity inflows are getting down which means redemption pressure at different ends and switch over investments from equities to other asset class is growing up which indicates that Fund managers are busy in protecting the best interest of their clients. It’s beyond hedge and more outflows from equities are going to begin.
Apart from this there are also certain risk which will keep the markets under volatile ride. The European Central Bank and the European Banking Authority will announce the results of its stress test on banks on July 29. The depth of the pain is very clear when we get into the numbers. The market cap of Italy's five largest banks is about 60 bln euros. The un-provisioned nonperforming loans was nearly 120 bn euros at the end of March. Monte Paschi has an estimated 47.2 bln gross NPLs. Reports indicate the ECB wants 14 bln euro reduction in those bad loans over three years. Italian banks are on the highest risk levels.

Further the  150 bln euro liquidity guarantee that the EU allowed Italy last week is only a stopgap measure. The reality is many of the subordinated bank bonds have been bought by retail investors, many of whom of course are taxpayers too. How their taxpayers money will be thrown into the open fire of liquidating them. Real Estate prices are also coming down in EU which will spook another crunch for liquidity in the coming days for the EU Banks. The crisis has erupted from popular commercial property funds, which tens of thousands of savers invest their Isa and pension cash, are at the centre of a market crisis. The collapsing prices of the EU real estate are risk for the fund and for the investments and redemption pressure would take big toll. The problem is with pension funds which have been invested in property related funds.

Hence safe assets like gold and cash are the best to stay. 

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