(Original title: Be careful! The rebalancing of large funds at the end of the season may lead to a sell-off of hundreds of billions of dollars in global stock markets?)
News from the Financial Associated Press on December 19 (edited by Xiaoxiang)At the end of each quarter, the rebalancing of assets by global sovereign wealth funds, pension funds and balanced mutual funds can often bring huge influence on capital flows. And at the end of the year, this traditional end-of-quarter funding driver may not be good news for the stock market…
Managers of the world’s biggest funds might sell as much as $100 billion in stocks in the final weeks of the year, according to industry estimates, adding to a sell-off in global stocks following last week’s hawkish rate hikes by major central banks pressure.
The capital flow under asset rebalancing at the end of the quarter actually depends on the performance comparison of the stock and bond markets earlier in the quarter, and the better the performance of the market, the greater the risk of capital outflow. Pension funds and sovereign wealth funds, the pillars of the investment community, usually rebalance their market exposure every quarter to achieve their set portfolio ratio of stocks and bonds, such as the classic 60/40 strategy, that is, 60% holdings and 40% are in debt.
And despite last week’s decline, stocks have performed well this quarter and pushed up their value relative to other asset classes, a situation that will force fund managers who need to strictly abide by the principles of weight allocation to sell stocks to buy stocks. To achieve the established goal of diversification of investment.
(Quarterly performance comparison of stock and bond market)
JPMorgan Chase & Co. and StoneX Group Inc. said bonds might be beneficiaries following sovereign wealth funds, pension funds and balanced mutual funds sold stocks, and the funds might replenish their fixed-income holdings.
Sovereign wealth funds may need to sell regarding $29 billion in equities by the end of December, while U.S. defined-benefit pension plans will also need to shift $70 billion in assets from equities to bonds for their long-term holdings, JPMorgan estimates. target, and return the relevant weight configuration to the level at the end of September.
“The recent stock market correction and bond market rally are themselves consistent with rebalancing assumptions,”StoneX’s macro strategist Vincent Deluard pointed out.
There has been some sort of rebalancing in the market over the last week, he said. Investors had to sell stocks and buy bonds to return to normalized allocation targets. Therefore, this situation is likely to continue until the end of the year.
exacerbated market sell-off
At present, the S & P 500 index has fallen by regarding 6% from its November high, and trend-chasing quantitative funds are expected to be forced to sell regarding $30 billion in stocks, and the rebalancing of assets at the end of the quarter will obviously further exacerbate market volatility. turmoil.
Japan’s $1.6 trillion Government Pension Investment Fund (GPIF), the world’s largest pension fund, will have to sell $17 billion in shares to get back to its target asset allocation, according to JPMorgan’s calculations. The $1.3 trillion Norwegian Oil Fund may shift $12 billion from stocks to bonds.
This process of asset rebalancing can be said to be the exact opposite of what happened at the end of the first and second quarters of this year. Those fund managers rushed to buy stocks at the end of the quarter as stocks slumped and had helped drive a strong but short-lived rally.
The last time these major funds had to sell stocks was in the fourth quarter of 2021, according to JPMorgan strategist Nikolaos Panigirtzoglou.
Of course, the market sell-off at the end of the year will likely still pale in comparison to December. “The rebalancing flow estimated then was almost double what was estimated for this quarter,” Panigirtzoglo said.
But in any case, for those U.S. stock bulls who are still looking forward to the “Santa Claus market” at the end of the year, the current situation is obviously quite bad.
Federal Reserve Chairman Jerome Powell made it clear last week that raising interest rates is still needed to fully control inflation, and warned that rates will remain high. While bond traders are still betting that the Federal Reserve will cut interest rates next year, stock market investors appear to be focusing on the prospect of a recession weighing on corporate earnings. The “stock and bond double kill” situation that has been staged on Wall Street for most of the year seems to be gradually evolving in the direction of “stocks falling and bonds rising”…
