Money manager who called China rally triples his allocation in cash

[SINGAPORE] A money manager who called the Chinese stock rally has just turned bearish, shifting much of his fund into cash and saying now is the time to short US equities.

Nader Naeimi, who oversees about US$1 billion in a dynamic market fund at AMP Capital Investors, has tripled his allocation to cash to about 40 per cent of his fund, he said. He is looking to increase his short bets on US shares after US President Donald Trump abruptly threatened increased tariffs on China, which Mr Naeimi sees as a turning point that will send already overvalued markets lower.

"Markets were ripe for disappointment," Mr Naeimi said in an interview from Sydney. "And here we have a trigger."

Equity markets tumbled on Monday after Trump said on Twitter that the US would more than double tariffs on US$200 billion of Chinese imports, and may impose a new 25 per cent duty on another US$325 billion of goods. The Shanghai Composite Index sank 5.6 per cent, while the S&P 500 Index fell as much as 1.6 per cent.

MISCALCULATION

In Mr Naeimi's view, Mr Trump probably calculated that the strong jobs report last week would help the US stock market absorb any negative impact of his upping the ante with China. But that may be a mistake, Mr Naeimi said.

"Trump, having seen front-page headlines on how strong US growth was after the jobs report on Friday, decided to go back to his 'Art of the Deal,'" Mr Naeimi said. "But underneath that solid jobs data there were so many cracks and that can only widen."

The S&P 500 has surged 16 per cent in 2019, and traded at the end of last week at almost 17 times estimated earnings, its most expensive since March 2018.

SHORT TECH STOCKS

Mr Naeimi says he will short US technology giants, while also reducing his allocation to emerging-market equities.

"The most vulnerable markets right now are the most crowded, and that's the US and EM and, in particular, technology stocks," he said.

Mr Naeimi said at the end of October that it was time to buy Chinese shares. The Shanghai Composite Index rose 18 per cent since then through the end of last week.

AMP's dynamic markets fund currently has 40 per cent of assets in cash, 40 per cent in fixed-income, 35 per cent in equities, mainly defensive stocks in European health-care and utilities, and 15 percent in short positions including those in currencies, Mr Naeimi said. "My total risk allocation is the lowest since last October," he said.

BLOOMBERG