Manager Who Called China Rally Triples His Allocation to Cash

(Bloomberg) -- 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 U.S. equities.

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

Manager Who Called China Rally Triples His Allocation to Cash

“Markets were ripe for disappointment,” 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 U.S. would more than double tariffs on $200 billion of Chinese imports, and may impose a new 25 percent duty on another $325 billion of goods. The Shanghai Composite Index sank 5.6 percent, while the S&P 500 Index closed 0.5 percent lower.

The U.S. plans to raise tariffs on Chinese goods on Friday, U.S. Trade Representative Robert Lighthizer told reporters Monday, accusing Beijing of backpedaling on commitments it made during negotiations. Futures contracts on the S&P 500 fell as much as 0.7 percent when trading resumed on Monday evening.

Miscalculation

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

“Trump, having seen front-page headlines on how strong U.S. growth was after the jobs report on Friday, decided to go back to his ‘Art of the Deal,”’ 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 percent 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

Naeimi says he will short U.S. 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 U.S. and EM and, in particular, technology stocks,” he said.

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

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

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