Piles of cash sitting on the sidelines of stock markets are likely to extend this year’s rally in equities as investors belatedly respond to signs of healthier economic growth, according to Larry Fink, boss of fund management giant BlackRock.
Speaking to CNBC’s Squawk Box yesterday, Fink (pictured) suggested that with ‘record amounts of money in cash’ and continued withdrawals from funds, investors were yet to take advantage of the US Federal Reserve’s U-turn on interest rate rises guidance.
Countering fears of a further correction should markets get ahead of economic fundamentals, Fink said: ‘We have a risk of a melt-up, not a meltdown here. Despite where the markets are in equities, we have not seen money being put to work.’
Fink gave the example of bonds, which ‘people had to rush into’ in the first months of 2019 as it became clear interest rates would rise at a slower pace than many expected.
Fed chair Jay Powell in January revised his insistence the central bank was on an ‘autopilot’ toward higher rates. Instead he said he was ‘listening carefully’ to investor sentiment and would respond with ‘sensitivity to the message that the markets are sending’ and would be taking ‘downside risks into account’.
Having as recently as September 2018 forecast four hikes this year, at its latest meeting the Fed proposed no further increases in base borrowing costs until 2020 at the earliest.
Investors have continued to pull money out of stock market funds, despite a rebound from the big falls at the end of last year that has seen the FTSE All-Share advance 13% and the S&P 500 notch up a 14% gain in sterling terms.
Investment Association data for February showed equity as the worst selling asset class among UK-domiciled funds, with £446 million withdrawn by investors.
Withdrawals from UK equity funds since Brexit topped £11.5 billion, while the Europe excluding UK sector lost £347.3 million in the month.
Global equity funds were the most favoured regional category, gaining monthly inflows of £282 million.
Fink was speaking after BlackRock's first quarter results underlined its status as the world's biggest fund manager. The manager of open-ended funds, exchange traded funds and investment trusts attracted $65 billion of new money from investors which combined with market gains lifted assets under management to $6.5 trillion from under $6 trillion at the start of the year.