Last week I mused about why so many perfectly rational economic actors like to irrationally keep their wealth in cash. It may yield next to zero, but cash isn’t a traditional ‘investment asset class’ – it’s a bundle of options for the future. Anyway, this week brings confirmation of my model, courtesy of Rathbone IM. They’ve done a survey of attitudes to cash and found that a quarter of HNW investors currently hold more than 50% of their wealth in cash. 25% keep over half of their wealth in cash whilst a further 35% of HNW investors keep at least 26-50% of their savings in cash. The sheer scale of these numbers are, I must admit, really quite surprising. That’s an awful lot of cash, sitting waiting for Jeremy Corbyn to tax into oblivion.

Here are some more numbers from the report:

– Regular investors (those with between £1K and £100K in investable assets) are also heavily reliant on cash savings. 46% of investors keep more than half of their wealth in cash savings, and 20% keep between 25-50% of their wealth in cash.

– Surprisingly, the amount that investors held in cash didn’t vary substantially across age groups. 31% of investors aged under 35 years old held over half of their wealth in cash, compared to 41% of 35-45-year olds and 40% of over 40-year olds.

The report goes on to suggest that HNW investors like cash because it is “the safest option. However, ironically, due to the low-interest-rate environment and high inflation, leaving too much money in cash could risk it becoming de-valued over time. 49% of HNW investors said that they believed cash to be the safest option, whilst a further 18% said fear of taking risk was a key driver for keeping wealth in cash savings.”

Now the none too subliminal message here is that this love-in with cash is slightly bonkers and perhaps investors might be better off investing in risk assets. And rationally, of course, that is spot on. It is a crazy imperative to keep so much in cash.

But this ignores the huge optionality value of cash. Cash is many things. It’s savings, a rainy-day fund, a way of buying expensive assets more cheaply in the future…even a reserve against unpredictable crap like a massive economic slowdown. Combined, all these optionality-based strategies and plans are priceless. The only pity is that the Labour Party also reads reports like these and will come to a very different long-term conclusion.

I want to finish with matters Russian. I have lots and lots of problems with our “friends in the East” and especially their leader but I’ve grown cautiously optimistic about investing in the region. It does look cheap and whatever you say about Putin, he is at least a fiscal conservative surrounded by emerging market leaders who have binged on leverage.

The only slight fly in the ointment is that the Russian economy might be in for a tough new year in 2019. This is the message from Renaissance Capital, a leading investment bank which recently held a breakfast with one of their top economists Oleg Kouzmin, He reckons that 2019 will be a tough year

“with softer GDP growth of just 1.2%; cooling consumer/investment demand growth (1.7%/1.5%); a 5% weaker year-average exchange rate (RUB66.3/$); and inflation rising above the policy target (4.7%)”. His base case assumes a $65/bl Brent oil price but does not change much with different oil price assumptions”.

Looking at the region more broadly, Kouzmin reckons that five of the nine CIS/regional economies could benefit from greater or smaller structural changes (Uzbekistan, Armenia, Georgia, Kazakhstan, and Belarus). “He believes Georgia and Kazakhstan will perform the best, with Armenia and Belarus looking fine, too. “Maybe it’s time to start looking again at London listed fund Georgia Capital.