Oil Prices Rise, Investors Flock to Cash and Energy

JAKARTA - Global investors are starting to hold their steps. The war in the Middle East and the spike in oil prices have put the market in a survival mode. Citing a report from The Straits Times, Thursday, April 2, investors are rushing to reduce risk, add cash, and move funds to the energy sector and assets that are considered safer.

The shift was evident throughout March. Assets sensitive to the economic cycle began to be abandoned. On the other hand, defensive sectors such as energy are actually being hunted. Active investment managers are also cutting risk exposure. The cash portion was raised, the allocation of US stocks fell sharply in recent weeks, and the net leverage of hedge funds also shrank.

Gabriel Sterne, head of global emerging markets at Oxford Economics, said investors are now busy tidying up portfolios amid great uncertainty. "In the face of great uncertainty, people reduce risk in their allocations and increase cash holdings in portfolios," said Sterne, quoted by The Straits Times. According to Sterne, investors are also turning to assets that are less exposed to prolonged oil price shocks.

The surge in oil prices has triggered new concerns: global growth could weaken, inflation could rise again, and central banks could become more aggressive. The Straits Times in its report wrote, Goldman Sachs assessed that this situation puts pressure on multi-asset portfolios and makes diversification space narrower, especially in a 60/40 portfolio containing 60 percent of stocks and 40 percent of bonds. When stocks and bonds fall together, investors' cushions or reserves also thin out.

Goldman Sachs' risk appetite indicator is now close to zero. Whereas at the beginning of 2026, the market was still betting on the "Goldilocks" scenario, namely global growth remained strong, inflation was declining, and policy support continued. Now, this assumption is shaken by two pressures at once: war and energy inflation.

In Singapore, still referring to The Straits Times, funds marketed in the local market recorded a net inflow of US$668 million into energy stocks from March 1-26, according to Morningstar Direct's initial estimate for open-ended funds and ETFs. On the other hand, US fixed income recorded the largest net outflow, namely US$646 million. Precious metal stocks also experienced a net outflow of US$355 million.

Globally, Bloomberg Intelligence recorded about US$11 billion out of nearly 100 gold and commodity ETFs since the conflict began. That was the largest monthly outflow ever recorded. The gold funds were the most affected, with redemptions of more than US$7 billion, while silver ETFs recorded an outflow of around US$1.4 billion.

On the other hand, inflows into global energy stocks rose to their highest level in years. Interest is also flowing into oil ETFs, utilities, industrials, infrastructure, inflation-linked bonds, and the US dollar as a hedge.

Sterne assessed that investment-grade sovereign credit now looks more attractive, supported by the strengthening US dollar and rising energy export values. Oxford Economics also raised the outlook for high-yield sovereign debt to neutral, while still warning that the asset is vulnerable if markets really go into risk-averse mode.

Conversely, foreign exchange and local currency debt are downgraded to underweight positions because they are more sensitive to persistent inflationary shocks. "Longer oil price shocks will deepen supply chain problems, push up inflation expectations, and raise yields," said Sterne. He estimates that the average Brent price will reach US$113 per barrel in the second quarter of 2026 and only return to pre-crisis levels in 2028. Currently, the May Brent contract is trading in the range of US$106.

Even though the market is getting more cautious, Goldman Sachs noted that the flow of funds into stocks has not turned negative. That indicates that some investors are still trying to buy when prices fall, especially in Europe and Japan. However, Sterne reminded, this move is not necessarily safe as long as the Strait of Hormuz is still closed and the risk has not subsided.

He assessed that emerging markets still have cushions or reserves to withstand the impact of current oil price shocks. According to Sterne, the current pressure has not led to financial system damage such as the 2008 crisis or debt crises such as the pandemic. But before the war subsided, investors still seemed to be on the lookout.