'Up to $316bn selling in equites by quarter end'

NEW YORK: US financial services major, JP Morgan (JPM) has predicted massive selling to the tune of $316 billion as investors are trying to balance their portfolios.

According to a report in Zero Hedge, this number will likely be lower following last week's sell-off which followed the original JP Morgan analysis, and may be some $40 billion less based on assumptions about forced Norwegian selling, we are still talking about selling in the $100 billion plus range in the days before quarter end.

"In all, we see some vulnerability in equity markets into quarter-end from pension funds entities as well balanced mutual funds selling equities and buying bonds to rebalance towards their target equity/bond allocations," JPM said. For those who hope that the worst is now over, JPM has some bad news, Zero Hedge reported. In one of his latest Flows and Liquidity reports, JPM quant Nick Panigirtzoglou writes that as we approach quarter-end, the equity rebalancing flow question is resurfacing in client conversations.

"The equity rally and the bond sell-off during the current quarter is naturally creating a pending rebalancing flow for multi-asset investors away from equities into bonds for pension funds and balanced mutual funds. How much of equity/bond rebalancing flow should we expect into current quarter-end?" he said.

JPM estimates around $107 billion of equity selling by balanced mutual funds globally into the end of March in order to revert to their 60:40 target allocation.

This is close to $7.5 trillion AUM universe globally, tend to rebalance over 1-2 months or so. The lesson from November/December 2020 is that balanced mutual funds exhibit flexibility and they do not necessarily rebalance every single month.

During the previous quarter, they appear to have postponed rebalancing for November-end or December-end and to have waited until January to de-risk/rebalance.

US defined benefit pension plans are a similarly big universe with AUM of around $8 trillion. They tend to rebalance more slowly over 1-2 quarters or so. Assuming they were fully re-balanced at the end of December, and by taking into account the QTD performance of US equities and bonds, JPM expects that the pending equity rebalancing flow by US defined benefit pension plans into the current quarter-end is negative at around -$110 billion. (IANS)

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