Hot Money in Leveraged Funds Is Growing Bearish on Stocks

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(Bloomberg) -- Here’s one clue the hot money is cooling on the stock rally.

Investors in short and leveraged exchange-traded products boosted their notional wagers against equities by $2.7 billion in June, the most in four months, according to global data compiled by WisdomTree. At the same time, they cut around $8 billion from long bets.

With a trade truce coming out of the G-20 meeting as well as a delay in restrictions against Huawei Technologies Co., investors this month are facing fresh worries that optimism is mostly priced into stocks.

Hot Money in Leveraged Funds Is Growing Bearish on Stocks

“They realize there’s no breakthrough yet in the talks, and they see valuations have reached high levels,” said Mobeen Tahir, associate director of research at WisdomTree in London. “That’s brought nervousness back to markets.”

Globally, $77 billion is parked in high-octane listed instruments that allow fast-money traders to make geared and inverse bets on everything from stocks to commodities to government bonds. Around 35% of assets are in short products, while leveraged longs make up the rest.

Last month was the best for equities since January, with an MSCI index of global stocks clocking a 6.4% gain. So far this month, the same gauge is up 1.6%.

Hot Money in Leveraged Funds Is Growing Bearish on Stocks

And here’s one more clue the hot money is getting cautious: Average leverage on gold products reached an all-time high of 2.09 in June, according to WisdomTree.

©2019 Bloomberg L.P.

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