A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Merrill Lynch’s well-circulated monthly survey of global portfolio managers was released early Tuesday, and it uncovered a decided turn towards pessimism for professional investors,
“What was most bearish in Oct FMS? Global growth expectations slumping to their lowest levels since Nov’08 … What are FMS growth expectations correlated with? Positively with high yield bonds, EM assets & financial stocks, negatively with government bonds & gold. .. What are the ‘crowded trades’? Long FAANG+BAT, short Treasuries, long S&P500.”
“@SBarlow_ROB FMS summary” – (research excerpt) Twitter
“@bySamRo “Investors are bearish on global growth” – BAML” – (chart) Twitter
“@FerroTV BAML global fund manager survey looking increasingly bearish” – (research excerpt) Twitter
“Investors gloomiest on world growth in decade, cut U.S. equity holdings - BAML poll” – Reuters
“For this month at least, value investors are putting hedge fund pros to shame” – Barlow, Inside the Market
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Research by Standard & Poor’s indicated that China’s sketchy off-balance sheet debt situation might be a lot worse than reported,
“[The study] noted a large gap between reported investment in local infrastructure and funding, as permitted by central authorities. As a result, the actual level of off-balance sheet debt could be several times more than what is publicly disclosed and range as high as 30 trillion yuan to 40 trillion yuan, or about $4.34 trillion to $5.78 trillion, credit analysts Gloria Lu, Laura Li and their team said in the report. “And that’s a debt iceberg with titanic credit risks,” they added, estimating that the ratio of all government debt to GDP was 60 percent last year.”
“$6 trillion of local government debt may be lurking under the surface in China: S&P” – CNBC
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I warned readers that I was going to feature Morgan Stanley strategist reports until their forecasting hot streak ends. U.S. equity strategist Michael Wilson published some disquieting research Monday,
“We like to think about valuation in the context of rates and the equity risk premium. Assuming rates stay between 3.00% and 3.25%, an equity risk premium of 300 to 325 bps puts us at an S&P multiple of 15.0 - 16.0x. In short, 16.0x is now the ceiling for market multiples while it was the floor in February's lower rate environment.”
A good portion of the past decade’s equity rally was the result of margin expansion – higher stock values for each unit of profits. The margin compression Mr. Wilson clearly expects could be the painful other side of the coin.
“@SBarlow_ROB This isn't happy news. From MS, Wilson this time, not Sheets: "We think that 16x fwd. PE is now more likely a ceiling, not a floor, for the S&P and that there is more volatility ahead."” – (research excerpt) Twitter
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Tweet of the Day:
Diversion: “Sears Is Not a Failure” – The Atlantic
Scott Barlow