The bear hiding in plain sight

GLOBALCAPITAL INTERNATIONAL LIMITED, a company

incorporated in England and Wales (company number 15236213),

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The bear hiding in plain sight

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At first glance, 2019 has looked a great year for equity markets — perhaps one might even call it a bull market. Almost all major indices have posted double-digit returns after a brutal sell-off at the end of last year. However, things look a lot more bearish upon closer inspection.

Flow data has shown a consistent trend of active fund managers pulling away from the market; the only inflows into global equities have been passive with machine trading and corporate buy-backs driving most index performance.

Funds have stayed away from equities all year, as the have done largely in the high yield bond market, another asset class particularly exposed to heightened levels of volatility.

If active managers, prefer to hold cash instead of stocks, then we are not in a bull market.

Europe's have been the worst hit markets in terms of flows and IPOs, the gold standard equity capital markets product, have suffered as a result.

Volumes are down and investors have only been willing to buy deals in select growth sectors, demurring when a company looks like it has any kind of cyclical exposure and demanding big discounts.

The IPO market is not a perfect gauge of sentiment among investors but if buyers are unwilling to commit capital to a new listing, a commitment that tends to require a deal of faith in a benign economic environment in the medium term, then it is a sign that investors are less than confident about the economy.

With global data now pointing to an economic downturn and political ructions causing bouts of volatility, indices are starting to represent the reticence of active equity investors.

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