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Trillions of Inflows and Counting ?

During the last 12 months, financial markets have seen volatility in various periods yet the VIX index is at the lowest. The year’s first quarter saw a large crisis in the form of a USA regional bank crash leading to a limited but swift fall at the end of March. From there markets saw a 16% rise till July followed by a fall of 10% till October. But the rally from here broke most of the records and even some hedge fund accounts as the market saw a rise of 15% within weeks. During this period US 10-year bond yield rose from 3.4% to 4.9% and closed at 3.9%.

During these volatile months, the flows in the market were large and unstoppable. According to a report, US ETF saw an inflow of $ 465 Bn till November. Within this International equities and fixed income received an inflow of $88Bn and US equities and fixed income received an inflow of & $382Bn with the rest witnessing mostly net outflow.

The biggest inflow was in US money market funds that received $1.3 Trillion pushing the asset size way above the record to a new high of $5.89 Trillion. The same was witnessed in many country-specific asset classes rape in Japan and India.

Given these large inflows in the base year, a repeat is very difficult if not impossible. This brings an important question to light, that is if central banks, inflation and geopolitical tensions do not ease as expected will these flows reverse and if they do then at what levels the financial markets will settle in 2024?


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