Canadians Sitting On $45-Billion In Cash: Report

Canadians sitting on $45-billion in cash: report

Investors in 'bad mood,' CIBC World Markets says

Jonathan Ratner, Financial Post  Published: Wednesday, May 07, 2008

Canadian investors sitting on a record $45-billion in excess cash will likely miss out on a huge opportunity if they try to wait out the market volatility, CIBC World Markets said in a report Wednesday. Despite the recent stock market recovery, cash holdings of Canadian households are climbing 15% annually - the fastest pace in more than six years. Balances in chequing and savings accounts have risen more than 7% annually, while cash positions in brokerage accounts are up an estimated 15%.

CIBC senior economist Benjamin Tal said investors who sat on the sidelines after the 2001 market correction missed out on more than $30-billion in gains - a pattern that is emerging again in 2008 due to the risk-aversion of younger investors and the less-attractive attributes of real estate.

Looking back further to the October 1987 stock market correction that lasted two months, investors sat on their cash for 16 months, during which time the stock market rose more than 20%.

"Ditto for the 2001 flight to safety," Mr. Tal said, also noting that high volatility is a good measure of the elevated nervousness of Canadians. The implied volatility of Canada's benchmark S&P/TSX composite index has surged 80% in the past year to its highest level in more than five.

"Judging from recent sales and redemptions from equity mutual funds, investors are in a bad mood," Mr. Tal added. Investors have cashed out $35-billion worth of equity mutual funds in the past six months and on a three-month moving average basis, net sales of these funds are now in negative territory - the worst showing on record.

"Clearly, safety is in these days," Mr. Tal said, noting that money market mutual funds are by far the most popular choice for investors these days with record sales of $10.7-billion in the first quarter of 2008.

So while the rush to cash is understandable given the elevated volatility and instability the markets have demonstrated since last summer, CIBC said that in all recent instances, those who wait to long to deploy their cash miss out.

http://www.financialpost.com/money/story.html?id=498683