Daily Management Review

International investors are hedging trade risks


In May, the pessimism of international investors regarding the trade confrontation between the United States and China increased again. The mutual accusations of the parties and promises to increase import duties contribute to the growth of negative sentiment. However, investors are not in a hurry to reduce investments in stocks, preferring to hedge their positions with derivatives.

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The monthly international survey of Bank of America Merrill Lynch managers was attended by 250 respondents who manage assets worth $ 687 billion. The survey showed that investors' concerns about the trade confrontation between the United States and China increased again in May. According to the survey, 37% of managers described the trade war as a key risk with unpredictable consequences for the global economy. The last time investors expressed such serious concerns at the end of last year.

At the same time, at the beginning of the year, investors ’concerns about the start of a trade war were mostly reduced. This was facilitated by the negotiations between representatives of both countries that started in mid-January. The parties haven’t signed the trade agreement in four months, but statements by official politicians and officials testified that they were close to concluding it. The situation changed last week, when US President Donald Trump tweeted that from May 9, he would raise duties from 10% to 25% on Chinese imports in the amount of about $ 200 billion. In response, China promised reciprocal steps.

Under such conditions, the risk appetite of investors has decreased markedly. According to the BofA survey, the number of managers, the level of investments in shares of which exceeds the indicative, was 11% higher than the number of those who reduced them. A month earlier, there were 17% more optimists. The positions of investors in the shares of American and Asian companies declined most strongly. The number of managers whose weight in such portfolios exceeded the indicative level was equal to the number of those with whom it was lower. At the same time, investors continue to hold large positions in shares of companies in developing countries.

However, more than a third of the surveyed investors took measures to protect against a sharp fall in stock markets over the next three months, which is the highest level in the survey history. “Investors are well hedged, but not disposed to disrupt trade negotiations,” said Michael Hartnett, Chief Investment Strategist at BofA Merrill Lynch.

source: bloomberg.com