Markets

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

It's like it never happened. The Dow Jones Industrial Average joined the S&P 500 on Tuesday in hitting a record high and virtually every risky asset class is at the same level it was before a majority of U.K. voters chose to leave the European Union. The reason is simple: cash is back in the market, and that means redemptions aren't nearly as bad as feared.

In the days following the Brexit vote, panicked investors plowed billions of dollars into open-end money market funds as they assessed the fallout of the unexpected result. The move helped push U.S. Treasury yields to a record low and fueled double-digit drops in riskier markets.

Fire! It's OK, Carry On
Investors poured into money market funds in the week following Brexit, and now have started to exit
Source: Bloomberg

Many investment funds had already gone into the week of the vote with high cash holdings. So, by last week, when it started to become clear the Brexit process will be a long one and global central banks are likely to flood the world with liquidity, all that cash has been piled back into risky assets. On Monday, the assets of the world's five largest open-end mutual funds reached the highest since at least February as investors tried to hitch a ride on the reborn bull market.

Nothing to Worry About Really
Assets of the five biggest open-end equity mutual funds plunged after Brexit but have fully recovered
Source: Bloomberg

The same goes for high-yield bonds. The world's five biggest open-end mutual funds that invest in junk-rated debt are now managing more money than they were at the end of May.

Brexit, Schmexit
After a round of outflows, investors piled straight back into open-end junk debt mutual funds
Source: Bloomberg

The message in this move is bullish. Part of the reason fund managers increase cash holdings is to pay investors asking for their money back. If they're reducing that buffer, it means redemption levels aren't strong, or consistent. And ultimately, if investors are comfortable leaving their money in risky assets, or even adding to them, there's room for further gains.

In fact, it's hard to see any major event that can stop the bull stampede at this point. The Fed isn't forecast to raise rates anytime soon and even if it does, that's counterbalanced by expectations of further stimulus from the Bank of Japan and the European Central Bank.

While the political and economic fallout from Brexit is yet to fully play out, it doesn't look like it can derail the current positive trend. Investors are taking their dollar bills from under the mattress and partying, U.K. be damned.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net