Financial market enthusiasm waned in June due to the conflict in Iran, however, widespread panic among investors was averted.
Investors displayed a cautious approach rather than panic during the Middle East conflict in June 2023, as indicated by the Calastone Fund Flow Index. This was primarily due to a buyers' strike, with outflows from equity funds amounting to a modest £98 million, a figure that is relatively small compared to the total transactions volume of £22.7 billion.
The decline in buy orders was more significant than the increase in sell orders. The value of buy orders for equities fell 7.5% to £11.3 billion, reaching their lowest point since September 2023, while the value of sell orders decreased by 2.5% to £11.4 billion. This trend suggests that investors were more hesitant to add capital rather than rushing to withdraw it.
Edward Glyn, head of global markets at Calastone, explained that June was characterised by prudence and restraint, rather than panic. He described the investor behaviour as one of caution, not fear. This cautious approach reflects a structural bias towards saving and investment accumulation that rarely sees net capital withdrawals at this scale.
The outflow from equity funds was not limited to the UK alone. Global equity funds also experienced a net outflow of £365 million, which is the first time net selling has occurred since September 2022. This outflow from global equity funds is much more unusual compared to the trend over the last ten years.
In contrast, other asset classes such as bond funds still saw positive inflows of £195 million, and safe-haven money market funds even saw increased inflows of £218 million, indicating a shift towards safer assets but without a full-scale flight from risk.
The net outflow from UK equity funds in June was £594 million, adding to a long-term structural trend of monthly selling by UK investors. North American equity funds, however, saw net buying of £306 million in June, following significant inflows of £3.3 billion between March and April.
The total value of transactions in June involving European and North American equity funds was £612 million, while the total value of transactions involving UK and global equity funds was £959 million.
In summary, the cautious investor behaviour stemmed from uncertainty and risk aversion triggered by geopolitical tensions but did not escalate into panic selling due to underlying confidence in markets and a preference to pause new investments instead of liquidating existing holdings aggressively.
Despite the decline in buy orders, the increase in sell orders was minimal during June 2023, as shown by the Calastone Fund Flow Index. This trend indicates that investors were more cautious about adding capital, rather than rushing to withdraw it, suggesting a structural bias towards saving and investment accumulation. Furthermore, the outflow from global equity funds, though unusual, was not limited to the UK alone, as other asset classes like bond funds and safe-haven money market funds still saw positive inflows, signifying a shift towards safer assets.
