If you go down to the woods today…
…it will be full of bears. Investors positioned for “summer of shocks”: FMS cash levels up from 5.4% to a high 5.5%; only 12% taking “higher-than-normal” risk; most crowdedtrade “long quality”. Based on FMS positions, contrarians should be moderately long risk via UK, Japan, tech & industrials, and take profits in EM, energy, discretionary
Short the Queen
BREXIT now seen as biggest “tail risk”; UK equity allocation plunges to lowest level since Nov’08; sterling 2nd most undervalued reading on record…good opportunity for traders looking to sell UK volatility and/or buy upside optionality.
Oil & US dollar rated top risk catalysts so…
…3-year high in relative weighting of EM equities to DM, 1st OW of EM since Sep’14, lowest energy UW in 20 months, value>growth at 3rd highest level past 10 years. But May plunge in China growth expectations = commodities & materials still big UW.
Small in Japan, smaller in Tech, too small in Gold
Contrarians note biggest Japan UW since Dec’12, smallest Tech OW in almost 2 years and Gold still seen as “undervalued” despite 20% rally in 2016.
FMS yearns for Keynes, not just TINA (There Is No Alternative)
FMS risk-aversion best explained by anaemic macro, negative profit expectations, forecast of 2 Fed hikes & majority (57%) do not anticipate “helicopter money” shock. 73% of investors, a record high, saying companies “underinvesting”.