London — Global investors admit to flying blind in markets roiled by erratic Trump administration trade rhetoric and chaotic economic forecasting, stressing that placing long-term bets was harder now than at any time since the 2020 Covid-19 crisis.
Anxieties over whether a 90-day White House-China tariff truce will hold, plus US budget gaps and whipsawing currencies have made investors extremely cautious about where to put their money.
Markets have been on a roller-coaster ride for weeks, with world stocks rallying 20% from more than one-year lows hit after US President Donald Trump’s April 2 tariff bombshell, after slumping 15% in three sessions.
The turbulence continued on Thursday with a sudden sell-off in global government debt, the latest event to spook long-term investors out of markets that they fear have lost the anchoring force of consensus forecasts.
“There is no macroeconomic visibility,” said Francesco Sandrini, chief investment officer of Europe’s biggest asset manager, Amundi.
He said he was following short-term speculative market trends instead of taking a stance on the global outlook.
“You may be right on the end-game for economics and valuations in the long term, but the risk is that it is going to be very painful in the short term.”
Other money managers said they had shifted global portfolios onto neutral settings, which ensure the balance of investments is not tilted towards any particular scenario, because even if their views were right, assets were not trading reliably.
“There is no reward for taking any risk at the moment,” Lombard Odier Investment Managers head of macro Florian Ielpo said.
Commodity trading adviser hedge funds, which mirror prevailing market trends, are also not taking strong directional bets on stocks or bonds right now, JPMorgan data showed.
Unpredictable
Last week, yields on 30-year US treasuries, rocketed to 5.013% from just 4.84% two weeks ago and equivalent Japanese yields hit a record high, in abrupt moves for which analysts have struggled to define exact reasons.
Earlier this month, trade war tremors also sparked a speculative buying frenzy of Taiwan’s dollar, which rose 8% against the US dollar in two days.
John Roe, head of multi-asset funds at Britain’s biggest investor L&G, said 2020’s pandemic-induced market was “the last time things were so totally unpredictable”.
He said he had briefly bought Wall Street stocks in early April, then reverted to a neutral stance on global equities and government bonds earlier this month.
Economists in early April were inputting US-China trade war scenarios into their models which produced global recession forecasts, Columbia Threadneedle Investments senior economist Anthony Willis said.
Then, in May, the White House and Beijing agreed to suspend reciprocal levies cheering markets. But the nervousness resurfaced last week after US treasury secretary Scott Bessent threatened unspecified trading partners with maximum tariffs.
“We’ve got all these scenarios and then it turns out a week later you might as well just chuck them into the bin,” Willis said.
Barclays, for example, last week scrapped its forecast for the US to enter recession this year.
Economic modelling following the Covid-19 was in some ways easier, said Willis, because events such as the arrival of vaccines provided “clear signals” for the economic outlook.
Whipsawed
HSBC Asset Management global chief strategist Joe Little expected further bursts of unusual price action in “whipsawed” markets.
“This makes it very difficult (for long-term investors) in terms of running positions and maintaining conviction,” he said.
Sandrini said he saw the risk of markets moving in “very harmful swings”, because of debt-fuelled speculation.
Flows into leveraged equity index trackers, which deploy borrowed capital in a manner that amplifies market gains and losses, hit a record high in late April as US stocks surged, LSEG Lipper data showed.
Citi strategists said trading in risky US derivatives dubbed zero-day options, which offer cheap exposure to stock market moves and can worsen market routs, has also hit a record high.
“The most dangerous thing that could have happened in markets was the [equity] rebound,” said Pictet Wealth Management chief investment officer César Pérez Ruiz, arguing this had lured in amateur traders who might panic sell at the first sign of a US downturn.
The Bank for International Settlements warned in March macroeconomic US surprises were “inducing larger market responses abroad”.
But bearish long-term investors also faced stampedes of retail investors and trend-following hedge funds moving against them each time markets turned briefly positive, Ielpo argued.
“We need to acknowledge that what we know about investing does not apply at the moment,” he said.
Reuters
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