‘I’m so bearish that I’m bullish?’

A spoon to start: the head of Kuwait Investment AuthorityThe London office has been terminated with immediate effect. Saleh al-Atiqi’S’s departure follows a turbulent period at one of the world’s largest sovereign wealth funds, characterized by high staff turnover and legal battles with former employees.

Welcome to FT Asset Management, our weekly newsletter about players in a multi-trillion dollar global industry. This article is an on-site version of the newsletter. Sign up here to get it delivered straight to your inbox every Monday.

Are the format, content and tone right for you? Let me know: [email protected]

Investors cut equity allocations to lowest level since Lehman bankruptcy

There are certainly plenty of reasons why investors are feeling gloomy right now: no end in sight to the war in Ukraine, high energy prices, runaway inflation, rising interest rates, lingering Covid. . .

The growing risk that all of this will push major economies into recession has spoken to major institutional investors, writes Chris Flood in London. As a group, they have cut their equity allocations to the lowest level since the collapse of Lehman Brothers in September 2008, according to Bank of Americaof the widely followed monthly survey of fund managers.

Pessimism has reached a ‘disastrous level’, says Michael Hartnett, chief investment strategist of BofA. An indication of that: the survey, of 259 investment managers with combined assets of $722 billion, found that cash holdings last month hit a 21-year high. And nearly four in five respondents expected corporate earnings to deteriorate more than at any time during the coronavirus pandemic or Lehman’s bankruptcy.

Opposites can see all the gloom and pessimism as a “buy” signal. But the “I’m so bearish I’m bullish” argument doesn’t sit well with Hartnett. He warns that any rebound in stocks or bonds is unlikely to turn into a sustained rally until it is clear that the Federal Reserve decided to have tightened its monetary policy enough to control inflation.

Meanwhile Albert Edwardsglobal strategist at Societe Generale, is true to its usually bearish stance. He thinks central banks’ role in driving up prices and their misjudgment of the severity of the current rise in inflationary pressures could prevent them from stepping in again to provide support if financial markets continue to weaken. He asks:

“Have the arrogance and hubris of Western central bankers now been reduced? And if so, what will it mean for the future?

It’s a big question that will haunt investors after an extended period of central bank largesse. This is unlikely to happen again as long as inflation remains an issue in the eyes of policymakers.

Do you think it’s time to buy stocks? Email me: [email protected]

Why young investors are not ready to give up risk

With $1,000 in savings and two US government stimulus checks, Chris Zettler started investing in 2020. He first bought companies he knew, he says, “but then I got tired of them.” He switched to call options at companies with volatile stock prices, riding the price swings, writes Madison Derbyshire At New York. He used a win to buy 100 shares of the same AMC stock at $30 in May and sold them at around $65 in June.

Aged 35 and studying finance at the University of AlabamaBirmingham, had a TD Ameritrade account that allowed him to trade on margin and place almost $8,000 in bets with his initial capital of $4,000. He turned that into $18,000.

Zettler saw his account balance soar to $50,000 before dropping to $35,000 when a bet swerved. He sold $20,000 worth of stock and paid his tuition: “I got lucky,” says Zettler.

Still, the risk was worth it, he adds. The possibility of making outsized returns outweighed the risk of loss: “If I did it again, would I have done it responsibly and sat on that $4,000?” Shoot, no. . . You have nothing to lose, so you might as well get your shot.

Zettler is part of a generation of investors who grew up around the 2008 financial crisis and its aftermath. Having struggled to accumulate wealth through traditional means over the past decade, many have turned to speculation in the riskier corners of the financial markets.

Experts say the growing appetite for speculative assets such as cryptocurrencies, NFTs and “meme stocks” (whose value skyrocketed in early 2021, driven by retail traders and hype social media) is not just about getting rich quick.

Stagnant wages, rock-bottom interest rates, soaring house prices – and now, corrosive inflation – have cut short the idea that those under 40 can follow the well-trodden path to the financial security that their parents borrowed. Young investors say they feel the game is rigged and playing by the old rules is a losing strategy.

Read the full story here on how even amid a crash in the crypto markets, there are few signs that the “moonshot generation” is planning to retire from the game.

Chart of the week

Premium investor demand for holding Italy’s debt soared to its highest level since mid-June as borrowing costs in the heavily indebted economy soared following the prime minister’s resignation Mario Draghi.

Draghi, the former president of the European Central Bankresigned on Thursday after right-wing parties in Italy’s parliament withdrew support for his national unity government, writes Ian Johnson in London.

Meanwhile, the European Central Bank’s decision to raise interest rates by 0.5 percentage points on Thursday – a bigger-than-expected hike and the central bank’s first in more than a decade – supported the demand for safer public debt, in particular German 10-year Bunds.

This widened the 10-year borrowing cost gap between Italy and Germany – a key measure of risk – to 2.3 percentage points, a high level that some analysts called a “danger zone”. “.

This widening of the spread reflects concerns about Italy’s political fragility and heavily indebted economy. It will also spark fresh concerns about fragmentation in the eurozone – when borrowing costs differ between southern and northern European economies – even despite the ECB’s unveiling of a new tool this week. purchase of bonds, the transmission protection instrument, to prevent debt crises.

Here is the markets editor Katie Martin on how the markets are testing the ECB’s resolve.

10 stories not to miss this week

Asset managers have navigated a rising tide of wealth in recent years. But Lex explains why rising interest rates, stubbornly high inflation and the worst start for equities in half a century mean that fund managers large and small will see their profits hit significantly this year.

Investors still need to exercise caution in emerging markets, writes Mohamed El-ErianAdvisor Allianz and Grammercy. Historically cheap prices are not enough given the macro headwinds.

Blackstone Groupthe world’s largest alternative asset manager, warns of a continued slowdown in economic activity as continued high inflation forces Federal Reserve continue to raise interest rates.

Turbulent global markets drove the $440 billion California Public Employees Retirement Systemthe largest US public pension plan, to its first annual loss since the 2009 global financial crisis. Toby Nangleformer Global Head of Asset Allocation at Columbia Threadneedle Investmentsexplains the large collateral call faced by pension funds in the UK.

The “return to cash” as a strategic asset has brought rare good news to investment managers. Rising interest rates are transforming the $4.6 billion money market fund business from a drag on profits to a source of revenue.

Neil Shenis new 9 billion Sequoia China The fund will target “politically correct” investments that align with Beijing’s political agenda, the latest sign of political pressure on investors in China.

“We had a spike in mutual funds,” says Pierre Harrisongeneral manager of Schröderswhich disclosed a minority stake in Forteus, an investment manager focused on digital assets. Here is an op-ed from Harrison explaining why the crypto crash has important lessons for asset managers.

US Quantitative Fund Strong has been hit by losses of between 20% and 40% across its funds this year, in stark contrast to the strong gains made by other computer-based hedge funds in the market turmoil in 2022.

Former FT City Editor Jonathan Ford former criticsApollo partner Sachin Khajuriathe book Two and twenty. His opinion ? A controversial investment industry insider’s account preaches to converts.

Bill Perkinsone of the hedge fund industry’s most successful energy traders, is expanding to London to exploit opportunities in the ‘crazy’ European market following Russia’s invasion of Ukraine.

and finally

Milton Avery, Boathouse by the Sea, 1959 © 2021 Milton Avery Trust / Artists Rights Society (ARS), New York and DACS, London

Milton Avery inspired abstract expressionists like Marc Rothko and Barnett Newman, and is considered one of the greatest North American colourists of the 20th century. According The New York Times“Only Matisse – to whose art he owed much, of course – produced a greater achievement in this regard”. The Royal Academy of Arts now shows the first comprehensive exhibition of Avery’s work in Europe. It brings together a selection of around 70 of his most famous paintings from the 1930s-1960s.

Thanks for reading. If you have friends or colleagues who might appreciate this newsletter, please forward it to them. register here

We would love to hear your feedback and comments about this newsletter. Email me at [email protected]

Due diligence — The best stories from the world of corporate finance. register here

The week ahead — Start each week with an overview of what’s on the agenda. register here

Comments are closed.