Extreme Complacency Has This $29 Billion Manager Selling Stocks

Updated on
  • Storebrand is trimming ‘overweight’ in stocks, adding cash
  • Says political risk has peaked in Europe after Macron win

When investors stop worrying, it’s time to start cutting stock holdings.

“There’s extreme complacency in the market,” Olav Chen, global head of allocation and global fixed income at Storebrand Asset Management in Oslo, said in an interview on Monday. “This isn’t the time to increase risk. We’ve become a bit more skeptical.”

Global stock markets are setting all-time highs as investors see little risk of a downturn. The S&P 500 Index has risen 18 percent in the past year and is closing in on 2,500 points while the Chicago Board Options Exchange Volatility Index is trading at historical lows of around 10.

Storebrand has trimmed its overweight in equities in the past months by selling stocks in its tactical mandates. Chen’s unit has also bought bonds, credit and raised cash holdings. And it’s prepared to reduce its stock exposure further if markets continue to rise without a clear justification.

“If the stock market moves 5 to 10 percent up without any special news, we will probably cut to normal weight in our tactical view,” he said.

Investors were encouraged after U.S. President Donald Trump’s election win in November with a promise of tax cuts and deregulation. But the Trump trade is fading as the main driver of stock market gains, according to Chen, who oversees about 250 billion kroner ($29 billion) in tactical mandates and global fixed income.

“The probability of him getting very expansive budget measures through is rather small,” he said. “My view is 2 to 2.5 percent growth next year.”

And with the prospect of a more protectionist U.S. as Trump presses ahead with his “America First” policy, a European Union reinvigorated by Emmanuel Macron’s win in the presidential election in France may shift its trade focus to Asia.

“The political risk in Europe has peaked,” Chen said. “Macron and Merkel will be the new core of Europe. A core that will drift away from the U.S. toward China regarding trade and climate. China will fill the void where Trump is pulling back.”

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