Agencies
Big investors are bracing for this summer’s stock market rout to run into the autumn, fearing a broader wave of selling will follow the turmoil sparked by US recession concerns and the Bank of Japan wrong-footing currency speculators. The sudden reversal of crowded equity and foreign exchange trades that generated vicious feedback loops of price drops, volatility and hedge fund selling has eased, with world stocks almost 2 percent higher so far this week. But asset managers overseeing hundreds of billions of dollars of investments said they were more likely to carry on selling stocks than buy back in, with signs of weakness in the US jobs market and global consumer trends lowering the bar for market aftershocks.
The buy-the-dip mentality, where investors typically respond to selloffs by making recovery bets, has been replaced by fear. “It’s not simply now a large financial market accident, which maybe we could describe last week as. It’s broader than that,” said Mahmood Pradhan, a former IMF deputy director and head of global macro at the research arm of Amundi, Europe’s largest fund manager.
He expects investors, who according to Bank of America have already cut equity positions and shifted increasingly into cash, to remain cautious. Michael Kelly, head of multi-asset at PineBridge Investments, which oversees around $170 billion of client funds, is among those to have reduced his funds’ stock market positions and he may pull back further.
“It’s going to be very, very volatile in the next two months,” he said. A first US rate cut, expected next month, might be too late to rescue the economy, he added. Investors’ global growth expectations have fallen to eight-month lows.
A weak US employment report and a shock BOJ rate hike drove the global stock market selloff as volatility linked and trend-following hedge funds headed for the exits and anxious investors herded into government bonds. The BOJ hike wrecked billions of dollars worth of previously profitable trades where speculators had borrowed yen cheaply to buy higher-return assets like US tech stocks.
