Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

Hedge funds' Europe stock buying spree unlikely to be maintained -JP Morgan

Published 03/09/2023, 08:13 AM
Updated 03/09/2023, 08:16 AM
© Reuters. FILE PHOTO: FILE PHOTO: A view of the exterior of the JP Morgan Chase & Co. corporate headquarters in New York City May 20, 2015. REUTERS/Mike Segar

By Nell Mackenzie

LONDON (Reuters) - Hedge funds' bullish equity positioning in Europe is in line with some of the highest levels of the past five years but the appetite for stocks may fade amid rising interest rates and dour signals from bond markets, JP Morgan said in a note to clients on Thursday.

European share prices may have been supported since November by hedge funds covering their short positions, essentially a bet that an asset price will weaken, the bank said, noting that there was less buying of UK equity.

The STOXX 600 index, a broad measure of European shares, has risen around 20% from lows hit in October and is holding up even as bond markets sell off in a sign that aggressive rate hikes will weaken economic growth ahead.

Trend funds, or CTAs, which frequently switch their buy and sell positions, have stayed bullish for longer than they usually would in European equities, the note said.

These funds ride the price of an rising or falling stock until it changes direction.

As well as closing bearish bets, some hedge funds have added long positions since February, although the bank questioned whether this trend would continue.

"The potential for cyclicals to keep getting bought as much as they have lately - by hedge funds at least - also seems unlikely," JP Morgan said.

Cyclical stocks are those companies that typically make or sell products that do well when the economy flourishes, such as restaurants, airlines, hotel chains and automobiles.

© Reuters. FILE PHOTO: FILE PHOTO: A view of the exterior of the JP Morgan Chase & Co. corporate headquarters in New York City May 20, 2015. REUTERS/Mike Segar

Industrial and transport companies also saw bullish buying, the note said.

Equity funds, multi-strategy funds and computer led and trend trading were among the hedge funds involved in covering short positions and establishing long positions, it said.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.