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One of World's Biggest Funds Isn't Wooed by Market Sell-Off

Ksenia Galouchko
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One of World's Biggest Funds Isn't Wooed by Market Sell-Off

One of World's Biggest Funds Isn't Wooed by Market Sell-Off

(Bloomberg) -- Thinking of buying the dip? One of the world’s biggest money managers says the stock market hasn’t slumped enough to make it purchase more equities.

According to State Street Global Advisors, U.S. President Donald Trump’s latest tariff spat with China has spooked investors so much that they’re unlikely to buy stocks until a deal is reached.

“Even though some people are saying this is a good opportunity to buy on dips, we’re not really seeing clients take advantage of that this month,” Altaf Kassam, the head of investment strategy and research for Europe, Middle East and Africa at State Street, which oversees $2.8 trillion, said in an interview in London.

“Those that have enjoyed the gains of the last 10 years are looking to protect themselves, and those who haven’t got in are probably not going to get in now until this trade war is resolved," he said.

The renewed trade war between the U.S. and China has removed one of the main catalysts for this year’s market rally, which lacked the conviction of many investors. It only took a few tweets for volatility to surge as global equities erased about $3 trillion in market value.

State Street’s view stands in contrast to Goldman Sachs Asset Management and Robeco, which are buying, or considering buying, equities following the market correction as they bet on a resolution of the conflict. But the latest Bank of America Merrill Lynch fund manager survey showed that investors consider the trade war to be the top tail risk, and a record share of market players has bought protection against a sharp decline in the stocks over the next three months.

This month’s drop of 4.4% in the MSCI All-Country World Index through Monday isn’t dramatic enough to encourage traders to buy the dip, said Kassam, who estimated it would take a 10% sell-off to get people interested. State Street had been overweight stocks before the May retreat and hasn’t used the dip to add to equity holdings.

The market mood soured again on Wednesday after a short bounce on Tuesday as traders fretted over the impact of the trade conflict on global growth.

The good news is that according to Kassam, this year’s share rally has the potential to resume, thanks to softer monetary policy and Trump’s re-election bid -- although the returns are unlikely to be “explosive.”

“This rally will end with a whimper, not a bang,” Kassam said. “It’s just going to die out, but I think it could go on for a lot longer because accommodating policies don’t look like they’re going to be removed anytime soon.”

State Street has a small overweight on emerging-market and U.S. stocks Recently increased exposure to high-yield U.S. debtIs staying underweight European stocks and doesn’t think it’s time to buy because of economic and political concerns

(Updates with today’s market move in the eighth paragraph.)

To contact the reporter on this story: Ksenia Galouchko in London at kgalouchko1@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Jon Menon, Tom Lavell

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