JP Morgan is projecting that the world’s biggest asset managers could sell around $150 bn in equities by the end of June. With flows set to head into bonds.
JPM says this is month- and quarter-end rebalancing. See the flows occurring because of the stark outperformance of equities compared with bonds this last quarter (so far).
- “The last time we had such gap with equities and bonds in opposite directions was in the fourth quarter of 2021,”
- “This rebalancing flow could create around a 3% to 5% correction in equities.”
JPM say balanced mutual funds, sovereign-wealth funds, pension funds and other money managers will need to make such shifts from equities to fixed interest to meet allocation requirements. Large pension funds typically keep a 60% stock/40% equity mix.
The 150bn figure is not set in stone, but as a guide, JPM expect:
- balanced mutual funds around $31 bn of equity buying, similar amount of bond selling
But for other big real money players the flow is expected to go the other way around. Again, there are caveats to these few examples:
- estimate Norway’s $1.3 trillion oil fund could see net equity sales of $18 billion (JPM warn this could be just $6bn if net oil revenues are invested equally across quarters and by their end-2022 asset weights)
- say the SNB, which invests a portion of its FX reserves in equities, would need to sell around $11 billion of global equities by quarter-end
- Japan’s $1.5 trillion government pension fund would need to sell around $37 billion of equities and buy an equivalent amount of bonds to rebalance its portfolio allocations
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At least the sellers, if they materialize, won't be hitting the lows, will they?
