There’s Risk of a ‘Buyer’s Strike’ in Stocks, Barclays Says

  • Active investor boosted risk exposure in week before U.K. vote
  • Mutual fund managers unprepared for outflows, risk aversion

U.S. Stocks Surge: How Long Will the Rebound Last?

The selloff following the U.K.’s secession vote, the deepest two-day rout since 2008, may herald an extended period of risk aversion in the global stock market, says Barclays Plc.

Active managers increased their exposure to risk assets in the week ahead of the U.K. vote on European Union membership, according to Keith Parker, the firm’s U.S. head of asset allocation. The result was an increase in equity positioning, a drop in cash levels and a surge in buying of cyclical stocks -- all of which signals stock mutual funds may be unprepared for a period of outflows, he said.

About $3.6 trillion was wiped from global equity markets after Britain unexpectedly opted to secede from the EU in a referendum last week, triggering a 6.9 percent tumble in the MSCI All-Country World Index in the two days after the vote, the steepest since markets collapsed during the financial crisis. While the global stocks gauge rebounded on Tuesday, a V-shaped recovery such as the one markets experienced in January is unlikely, according to Barclays.

“The current environment of heightened uncertainty gives rise to a ‘buyer’s strike’ as investors wait for a sufficient value cushion to open up before deploying precious dry powder,” Parker wrote in a note dated Tuesday.

There’s also scope in the market for short bets to increase, with bearish wagers in the S&P 500 at 2.15 percent compared with highs in September and January of around 2.4 percent, Barclays data show. That implies almost $50 billion in potential losses. Short interest in ETFs is also near all-time lows -- another $50 billion of likely selling.

U.S. mutual funds’ elevated equity positioning contrasts with lower exposure in European funds, which went from underweight to neutral heading into the British referendum, the data show. Investors could see an extended period in which the market struggles to find a bottom, similar to what happened from 2011 to 2012, Parker said.

Before it's here, it's on the Bloomberg Terminal.