ASX investors have a new wall of worry to overcome this year. Global fund managers are turning bearish as the eight-year bull market is starting to look long in the tooth!
A survey of fundies undertaken by Bank of America Merrill Lynch (BAML) and reported in the Australian Financial Review makes for sombre reading with institutional investors slashing their expectations for corporate earnings over the next year as sentiment turns bearish.
Local investors aren't perturbed with the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index jumping 0.8% at the time of writing as the fundamentals for our stocks look positive head of next month's profit reporting season.
But investors should take heed. The Australian economy and our blue-chip stocks are heavily reliant on the global economy to turn a buck.
Slowing overseas growth will directly impact on our market with local favourites like gaming machine maker Aristocrat Leisure Limited (ASX: ALL), logistics group Brambles Limited (ASX: BXB), investment bank Macquarie Group Ltd (ASX: MQG) and national carrier Qantas Airways Limited (ASX: QAN) not only exposed to international markets but also having highly cyclical businesses.
The latest survey found that fundies are pulling money out of equities as the threat of a global trade war and higher interest rates has added to their downbeat outlook for stocks.
Expectations for faster world growth are now at their lowest level since February 2016, noted BAML.
Furthermore, the survey found that the highly revered FAANG stocks – which are made up of Facebook, Apple, Amazon, Netflix, and Google – and Chinese tech heavy-weights Baidu, Alibaba and Tencent, represent the most crowded trade.
A crowded trade is when most investors have bet on the same thing and is seen as an early indicator of an impending sell-off.
This should worry ASX investors as this group of US-listed tech stocks have propelled global share markets higher. Their collapse will send a wave of pessimism on risk assets, which in turn will likely sink our local market.
Even our local bank stocks like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB) won't be immune even as their businesses are domestically focused.
This is because the big four have an overreliance on international investors to fund their operations. If these overseas backers turn bearish, funding costs for our banks will spike higher.
But this isn't the time to throw in the towel on stocks. I suspect we will see an easing in trade tensions and the US Federal Reserve chair Jerome Powell has told the US senate that the Fed is in no rush to lift rates if the global trade war deepens.
In other words, be alert but not alarmed.
