UK savers invested £4.2 billion (€4.9 billion) in retail funds throughout January, before news of the coronavirus began to have a negative effect on markets, according to data from the Investment Association (IA).
Net retail sales were up 16% compared to December. It was the biggest monthly inflow since January 2018, in what the IA called “the calm before coronavirus”.
Fixed income funds were the best-selling asset class, with £1.7 billion of inflows – three times the amount for the same period last year. Equity funds came in second with £881 million of new cash.
Responsible investment funds also saw “record” net sales of £526 million, according to the UK’s investment trade body, whilst active and tracker funds had £2.1 billion of inflows each.
It was a strong start to the year, according to IA chief executive Chris Cummings. “However, since then, coronavirus has affected economies around the world and unsurprisingly, markets have reacted negatively to this uncertainty,” he said.
“This is clearly an increasingly unsettling time for everyone, including investors. And while it’s important to take a long-term view, with markets tending to overcome periods of volatility, we will have to wait to see how recent steep market falls have affected investor behaviour in February,” he added.
Separate data from funds transaction network Calastone shows how equity funds were hit hard during the last week of February, as investors flooded to withdraw their cash amidst ongoing news of the negative economic impact of the coronavirus.
Although investors bought equity funds “enthusiastically” in the first three weeks of the month, when markets began their worst week in over a decade on February 24, they withdrew capital at an unprecedented rate, according to the firm.
Index provider MSCI forecasts that there is room for further short-term losses due to the coronavirus, having carried out a stress test using scenario analysis.
Global growth is already affected. In the case that a short-term drop in growth of two percentage points, and a risk-premium increase of two percentage points, US equities could suffer further.
“US equities — already down 11% from February 19 through March 3 — could drop a further 11%, while a hypothetical 60/40 global multi-asset-class portfolio could lose another 7%,” the firm said on Thursday.
“From a long-horizon perspective, if a pandemic caused a shock to trend growth and the economy declined, the rebound from a market correction may be slower, and markets would feel a longer-lasting effect,” it added.
Also on Thursday, the virus struck Canary Wharf in London, after an HSBC worker was tested positive, prompting the firm to evacuate its offices, it was reported.
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