Anybody who has been paying close attention to international economic data (both the hard data, and the "soft" survey data) could tell you that the "synchronized global growth" narrative that proliferated at the beginning of the year has faded as Citi's G-10 economic surprise index, which after peaking at the start of the year, has sunk into negative territory...
And while the US fourth quarter GDP was just revised higher to 2.9%, as we've explained time and time again, GDP growth masks the fact that the US economy is heavily reliant on debt for much of this growth.
Still, the "global coordinated economic recovery" persists. And while some investors are beginning to worry that inflation, which is necessary to mitigate the $200 trillion in debt rattling around the global economy, won't arrive in time to assuage the market's fears, the burgeoning trade war between the US and China has provided a useful distraction to the fundamental story.
Enter Nader Naeimi, a money manager at the $145 billion AMP Capital Investors Ltd. In a telephone interview with Bloomberg on Friday, Naeimi expressed his frustration that he might need to pull all his exposure to US assets, not because of the deteriorating fundamental story, but because all of this trade war drama has ratcheted up political risk to an unacceptable level.
"We’re torn here" said Naeimi, who directly manages about $1.4 billion and helps oversee more than $60 billion for AMP. "On the one hand, there’s great fundamentals, global growth is synchronized, but the political risk is just becoming too much to handle."
And while the prospect of further upside in US equities is unpalatable, Naeimi feels he has no choice but to pull his money.
"At some point, you just bite the bullet and say, I’m just going to get out of all my assets, all my exposures out of the US," Naeimi said. "That’s the No. 1 thing we’re thinking."
"We’ve got to find ways" to protect the portfolio, he said.
To be sure, Naeimi says his fund is already light on US equities. In his search for possible trade-war hedges, Naeimi says one strategy he's considered is shorting Boeing - which has taken the brunt of trade-war related selling among the Dow stocks - and going long France's Airbus.
"China’s got a pretty massive agreement, deal with Boeing, so they could easily reverse that," he said.
Naeimi also said he recently purchased gold (which was the big winner from Q1) to hedge is equity holdings.
But the greatest hedge of all? Selling everything, Naeimi said.