Schroder Investment: Three types of "bears" are raging in the volatile global stock market
Schroders' Co-Head of Investments and Group Chief Investment Officer Johanna Kyrklund stated that in the volatile global stock market, there are three different types of "bears" wreaking havoc. The first type of "bear" is the macro hedge fund industry, which is being affected by the unwinding of yen carry trades. The second type of "bear" is trend-following traders and systematic traders, who have already executed the first round of trades. The third type of "bear" is fundamental analysis investors, who are more focused on medium-term performance. The financial markets have already priced in the expectation that the Federal Reserve will cut interest rates 5 to 6 times by the end of 2024, a view that has started to deviate from reality and become more extreme. As long as the credit market and labor market remain robust, asset valuations have not yet fallen to the point where it would be prudent to make large-scale asset purchases regardless of economic cycle factors
According to the financial news app Smart Finance, Johanna Kyrklund, Co-Head of Investment and Group Chief Investment Officer at Schroders, pointed out that in the volatile global stock market, there are three different types of "bears" wreaking havoc. For one type of "bear," the turmoil in the financial markets has brought some benefits. Investors have been pricing in the "golden girl" scenario since 2024, which involves mild inflation and sustained economic growth conditions. The recent financial market volatility has raised doubts about the possibility of an economic "soft landing." The performance of the financial markets is mainly driven by three types of investors, namely the three "bears."
The first type of "bear" is the macro hedge fund industry, which is currently affected by unwinding yen carry trades. The recent shift in the Bank of Japan's monetary policy, as well as market expectations of a rate cut by the Federal Reserve, have weakened investors' expectations of interest rate differentials between the United States and Japan, leading these funds to unwind their carry trade positions. The impact of these trades is expected to dissipate soon.
The second type of "bear" consists of trend-following traders and systematic traders. They have already executed the first wave of trades, primarily in response to the increase in market volatility. The first wave of trades is usually very rapid and highly correlated across systematic strategies. The market may currently be in the second wave of trades, with signals shifting to reflect changing trends and decreasing correlations between different investment strategies. Analysis indicates that these investors have not completely emerged from the predicament.
The third type of "bear" is fundamental analysis investors. These investors (including Schroders) often focus more on medium-term performance, placing emphasis on whether the risks of an economic recession have been adequately reflected in the financial markets.
Johanna Kyrklund stated that the financial markets are currently anticipating that the Federal Reserve will cut interest rates 5 to 6 times by the end of 2024, with each cut being 25 basis points. This view has already started to deviate from reality and is becoming more extreme. Schroders' conclusion is that as long as the credit markets (especially credit issuance) and labor markets remain robust, even if asset valuations have not fallen to the point where assets can be purchased on a large scale regardless of economic cycle factors, the recent adjustments have eliminated some bubbles in the financial markets and improved return prospects before entering the autumn season