AMP expects a share market sell-off. Photo: Peter BraigAMP Capital Investors’ Nader Naeimi is reducing equity holdings for the first time since 2011 as he sees the paring of Federal Reserve stimulus driving a 10 per cent slump in US stocks by year-end.
Shares had risen too far, too fast as the Fed prepares to cut the $US85 billion in monthly asset purchases that helped the S&P 500 index reach an all-time high this month, said Mr Naeimi, head of dynamic asset allocation for the unit of Australia’s biggest asset manager.
Uncertainty ahead of German elections next month and about who will replace Fed chairman Ben Bernanke would also drag on global equities, he said.
‘‘Cash is the safest place right now,’’ Mr Naeimi said. ‘‘We’re expecting a pullback much bigger than pullbacks we have experienced so far since 2012.’’
The US central bank’s plan to reduce record stimulus is whipsawing stocks, bonds and commodities.
The S&P 500, which has gained 17 per cent this year, was likely to sink at least 10 per cent by December 31, said Mr Naeimi, who correctly predicted an 18 per cent correction in Japan’s Topix index that began in May.
AMP’s Dynamic Asset Allocation Fund, which manages money for institutional clients, had reduced shares in favour of cash, he said.
The allocation changes affect more than $50 billion of AMP’s diversified funds, Mr Naeimi said.
The funds now hold less Australian and emerging-market equities than the benchmarks they track, while owning more Japanese and European shares, according to Mr Naeimi.
He’s neutral on US stocks and has cut high-yield bond holdings to zero.
‘‘The transition from liquidity-driven strength to fundamental-driven gains is often marked by increased volatility and price weakness,’’ Mr Naeimi said. Shares might advance on good data once the transition period is over, he said.
Mr Naeimi pared equity investments in early 2011 before the European debt crisis began roiling markets, he said. He started adding to holdings at the end of that year after investor sentiments moved to pessimistic extremes and increased his allocation every time equities slipped until June. This time is different.
‘‘The risk-return reward is no longer as good as it used to be,’’ Mr Naeimi said. ‘‘I don’t see much valuation buffer – it’s not as cheap as it was a year ago,’’ he said, citing a declining gap between bond yields and the earnings yield on stocks, from 4 per cent in late 2012 to 1.9 per cent now.
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