Amid escalating global trade tensions, investors have turned to money market funds as a safe haven, leading to a significant surge in inflows. The United States’ recent decision to impose steep tariffs on imports from Canada, Mexico, and China has fueled economic uncertainty, prompting investors to seek stability in global money markets.
A Massive Shift to Money Market Funds
During the week ending March 5, global money market funds attracted an impressive $61.32 billion in inflows, following $39.55 billion in net purchases the previous week, according to data from LSEG Lipper. This dramatic shift highlights growing investor concerns about the potential impact of the trade war on global economic stability.
While money market funds saw strong demand, global equity funds experienced a noticeable decline, recording their lowest level of inflows in four weeks. Equity funds saw only $2.97 billion in net inflows, indicating a retreat from riskier assets.
U.S. Equity Funds Suffer as European and Asian Markets Gain
The U.S. equity market bore the brunt of investor uncertainty, with net outflows totaling $9.54 billion over the week. This suggests that concerns over the trade war and its implications for American businesses are driving investors toward alternative markets.
Conversely, European and Asian equity funds experienced strong inflows, receiving $5.87 billion and $5.83 billion, respectively. This shift indicates a growing investor preference for regions perceived as less vulnerable to trade-related disruptions.
Sector-Specific Trends in Global Equities
The technology sector faced significant outflows, with investors pulling out $2.91 billion—the largest weekly net sales since December 2021. Other sectors also felt the strain, with the industrials sector seeing $397 million in outflows and consumer discretionary funds losing $367 million.
These trends reflect investor concerns that global trade disputes could slow technological innovation, reduce industrial output, and dampen consumer spending, leading to a more cautious approach to sector-based investments.
Bond Markets Maintain Strong Inflows
Despite turbulence in equity markets, global bond funds remained in demand for the tenth consecutive week, attracting a net $17.02 billion in inflows. Short-term bond funds saw particularly strong interest, bringing in $6.4 billion—the highest weekly inflow since January 8.
High-yield bond funds also performed well, with a seventh consecutive week of net purchases totaling $3.17 billion. The continued strength in bond markets suggests investors are hedging against economic uncertainty by seeking relatively stable fixed-income assets.
Commodities See Mixed Results
In the commodities sector, gold and precious metals funds continued their upward trend, recording $1.22 billion in inflows for the fourth consecutive week. This suggests that investors view gold as a safe-haven asset amid increasing market volatility.
Meanwhile, energy funds saw a net outflow of $114 million, reflecting concerns over fluctuating oil prices and the impact of the trade war on global energy demand.
Emerging Markets Remain Resilient
Emerging market equity funds attracted $1.52 billion, marking their third consecutive week of inflows. Bond funds in emerging markets also saw strong demand, with net purchases reaching $1.63 billion, extending their streak to nine weeks.
Despite broader economic uncertainties, the steady flow of capital into emerging markets signals investor confidence in their long-term growth potential. This trend suggests that while trade tensions remain a major concern, investors are selectively identifying opportunities in markets that may be less affected by global trade policies.
Conclusion: A Flight to Safety Amid Uncertainty
The recent surge in money market fund inflows underscores the heightened risk aversion among investors as global trade tensions escalate. While equities, particularly in the U.S. and technology sectors, have faced challenges, bond markets and safe-haven commodities like gold have gained traction.
As trade negotiations continue to unfold, financial markets will remain sensitive to policy developments. Investors will likely keep a close watch on central bank responses, inflation trends, and economic growth indicators to guide their portfolio decisions in an increasingly uncertain environment.