The world’s biggest hedge predict that a “big shakeout” is coming as financial markets are braced for more volatility over this week.
This fall prompted by the apparently sudden realisation that the “era of virtually free money” which has played such an important role in driving the prices of shares and other assets to successive new highs over the past decade is drawing to a close.
The Australian stock market was the first to test the water on Monday morning and one point was down 0.7%.
But it rallied slightly in afternoon trade and bourses elsewhere in Asia Pacific also found calmer waters. South Korea’s Kospi was up 0.9% while Hong Kong put on 0.8%. The Nikkei in Japan was closed for a holiday.
Last week saw $4tn wiped off the value of shares around the world and the US market entered into an official correction after falling more than 10% from its record level in January.
Wall Street staged a late rally on Friday as the Dow Jones finished 330 points higher and the closely watched Vix index, or “fear index”, has dropped four points to 29 on Monday from 33 on Friday.
But Bob Prince, co-chief investment officer at the $160bn US hedge fund Bridgewater, told the Financial Times on Monday (paywall): “There had been a lot of complacency built up in markets over a long time, so we don’t think this shakeout will be over in a matter of days.
“We’ll probably have a much bigger shakeout coming.”
David Bassanese, the chief economist at BetaShares Capital in Sydney, said in a note on Sunday that despite the big falls last week, the selling could continue.
Investors would be jittery about US inflation figures on Wednesday, he said. The market was forecasting a “fairly benign” 1.7% annual prices growth, but anything above that was likely to result in more stock losses.
The fear of rising US bond yields and higher inflation thanks to higher wages is what sparked the current wave of selling on 2 February as investors digested the prospect of higher interest rates as a result.
>Juthy Saha
Stock Markets are Falling around the World
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