According to BNY's Geoff Yu, global equity indices have experienced a strong rebound; however, institutional cash holdings across all regions remain below pre-conflict levels, indicating a disconnect between price gains and institutional participation [1]. The recovery rate of equity holdings is highest in Emerging Markets (EM) Americas, a trend attributed to the region's commodity exposure, though the initial movement in holdings was limited [1]. In contrast, EM Asia-Pacific (APAC), particularly Korean and Taiwanese equities, lags behind due to previously crowded positions and a higher risk of correction, resulting in a slower recovery to pre-conflict levels [1].
Yu notes that retail investors are currently driving flow interest, while institutional investors are waiting for greater certainty regarding a durable ceasefire before re-entering the market in force [1]. He highlights that institutional investors may be sidelined more due to geopolitical concerns than earnings outcomes, which presents a risk that these managers could fall significantly below their benchmarks and be forced to re-enter the market ('stopped in') [1].
The presence of substantial sidelined institutional cash suggests the potential for another risk rally if there is positive news regarding the conflict, but Yu cautions that the threshold for such 'good news' is high [1]. The performance in EM Americas mirrors trends seen in the region's FX and fixed income markets, while EM APAC remains an outlier due to its previous extreme performance and the magnitude of recovery required [1].
CONCLUSION
Institutional investors remain cautious, keeping significant cash on the sidelines despite a rebound in equity prices, especially in Emerging Markets. The potential for a renewed risk rally exists if geopolitical conditions improve, but institutional re-engagement hinges on greater certainty around a durable ceasefire.