Middle East Conflict Triggers Worst Equity Outflows Since Autumn Budget
The ongoing Middle East conflict has ignited the most severe bout of equity market outflows in months, as investors rapidly retreat from stocks due to mounting fears over soaring inflation and potential fuel shortages. According to the latest research from Calastone, equity fund outflows surged dramatically to £1.4bn in March, representing a sharp 55.3 per cent increase compared to February. This alarming trend has officially marked March as the worst month for outflows since November 2025, when speculations and concerns surrounding the Autumn Budget triggered significant selloffs across financial markets.
Record-Breaking Outflows and Global Impact
March's outflows rank as the seventh worst on record and have extended an unprecedented streak of outflows to ten consecutive months. Equity fund sectors experienced widespread selloffs, with the notable exception of North America, where investors demonstrated resilience by maintaining their positions. The largest deterioration in investor optimism was reported in Europe and the Asia-Pacific region, reflecting heightened global uncertainty. UK equity funds bore the brunt of the selloffs, with outflows escalating to £592m, up from £555m the previous month. Global funds also faced net selling, although outflows decreased to £205m, which is less than half of February's level.
Bond Market Turmoil and Safe-Haven Shifts
Simultaneously, turmoil in the bond markets prevented fixed income funds from capitalising on the exodus from equities. Investors withdrew £535m of capital from bond funds globally, reversing February's inflows, as global yields skyrocketed in response to oil-shock inflation fears. The temporary closure of the Strait of Hormuz, which has since reopened, ground the oil trade to a halt and severely choked supply, exacerbating market anxieties. March also emerged as the worst month for fixed income funds since April 2025, coinciding with Donald Trump's announcement of reciprocal tariffs, and ranks as the seventh worst on record. In contrast, safe-haven money funds witnessed inflows rise to £228m, while mixed asset funds continued to attract investments.
Expert Analysis on Market Sentiment
Edward Glyn, head of global markets at Calastone, provided insight into the market dynamics, stating: "Financial markets do not simply set prices, they are probability engines weighing the likelihood of future events. This helps explain why market movements, though large, have been relatively modest given the potential extent of the damage the oil crisis could have on the world economy. It also helps explain why outflows are not larger. Certainly, some fund investors are not waiting around to see what happens. They are voting with their feet and pulling capital out of risk assets in favour of cash." Glyn noted that the overall sentiment is not one of panic, as UK outflows remain well below the levels seen during Budget speculations, and the full effect of the conflict remains unknown, with most investors not requiring immediate liquidity. He added: "Although there are notable outflows at the margin, most are content to stay invested knowing that most crises look like blips through a long-term lens."
Property Funds Also Suffer Setbacks
Property fund outflows similarly took a hit, jumping to £44m in March, more than double February's outflows of £20m. Calastone attributed these outflows to a clear desire to withdraw cash that was already invested, with sell orders increasing by £21m to £152m, rather than subdued sentiment towards new buying, as orders fell just £3m to £108m. This increase in outflows mirrors the activities observed in both equities and bond markets, highlighting a broader trend of risk aversion among investors.
