Investors may remain in cash more than expected as safe-haven assets seen as traditional hedges aren’t panning out, according to JPMorgan Chase & Co.
Above-average allocations to cash may be an unintended consequence of easy-money policies, with cyclical assets seen as too difficult to hedge in a zero-yield environment, strategists led by John Normand wrote in a note Friday. That conservative mindset may not become popular enough to affect the direction of risky markets, but it could discourage investors from deploying their cash into other asset classes, they said.
“Defensive assets are delivering their weakest performance and therefore worst hedge protection of any equity sell-off in at least a decade,” Normand said. “The wall of cash some hypothesize will inevitably flow into equity, credit and EM may remain very high indefinitely.”
