Monday, May 29, 2006

 

Time To Get Defensive On Equities

Bloomberg has some ideas on 'surviving the market slump.' "The best generals are those who perform well in retreat, goes an old military adage. The same can be said of investors seeking to protect profits and limit losses in the current stock-market slump. 'Investors want out of these speculative, overbought markets and want less risk,' said Clark Winter, investment strategist at Citigroup."

"Morgan Stanley Capital International's Emerging Market Index has plunged 13 percent since May 8, when it closed at a record. In developed markets, the Dow Jones Stoxx 600 Index in Europe has tumbled 6 percent since setting a five-year peak May 9, while Japan's Nikkei 225 Stock Average has given up 7.6 percent since its peak for the month."

"U.S. stocks have held up the best, with the Standard & Poor's 500 Index falling 3.4 percent from a five-year high May 5. Among the hardest-hit markets: Turkey, Brazil and India, where benchmark indexes have lost 25 percent, 15 percent and 15 percent, respectively, in dollar terms since the emerging-markets peak. All three had soared 80 percent or more in the year leading up to the high."

"Chen Zhao, head of global strategy at BCA Research in Montreal, said he's recommending defensive strategies. Zhao advises holding on to emerging markets shares while they're slumping. Investors can take advantage of the fact that prices of industrial metals such as copper and nickel track emerging stock markets 'almost perfectly,' yet as a group had risen 25 percent more since Dec. 30, he said. Thus, shorting a basket of metals using futures contracts offers a hedge against further emerging-market declines, he said."

"For investors with a strong stomach for risk, Chen said it might be worth shorting the Australian and Canadian dollars and the Chilean peso on the expectation that metals prices have further to fall."

"While U.S. stocks have held up better than shares in other regions, further declines are ahead, said Michael Belkin, president of a firm that uses quantitative models to predict market moves. His advice is to sell when markets rally. The S&P 500 may fall another 14 percent before the current decline is over, and the Russell 2000 Index of small-capitalization companies might drop another 24 percent, he said."

"His research indicates a 24 percent tumble for the average European stock index and a 29 percent decline for the Nikkei, all over the next three months. 'Markets should be poised for an asset-allocation shift out of equities into government bonds,' said Belkin. 'The current stock-market decline will probably culminate in some sort of violent selling climax,' Belkin predicted. 'Markets aren't there yet.'"

Comments:
Asset managers face a conumdrum. Isn't it odd that so many markets ran up to all time highs in such short a time?

'$363M is average pay for top hedge fund managers'
 
All that money being printed by CBs needed to find a home...and it still will.
 
when we hit recession, sure the metals will probably suffer, but they'll print money. that's why I'm here.
 
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