Global stocks and exchange traded funds could enjoy a good bounce as pension and sovereign wealth funds rebuild their risk positions after equities took a beating in response to the risk-off selling during Russia’s invasion of Ukraine and rising inflationary pressures.
Year-to-date, the Invesco QQQ Trust (NASDAQ: QQQ) decreased 18.5%, the SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) declined 9.0%, and the SPDR S&P 500 ETF Trust (SPY) was down 11.6%.
Meanwhile, the Vanguard Total International Stock ETF (NASDAQ: VXUS) fell 11.5% and the iShares Core MSCI Total International Stock ETF (IXUS) dropped 11.8% so far this year.
Looking ahead, JPMorgan Chase & Co. projects that institutional investors could contribute to a potential $230 billion equity-buying spree as valuations look much cheaper, bolstering beleaguered global equity markets by as much as 10%, Bloomberg reports.
These money managers typically rebalance market exposures every quarter to keep in line with strict allocation limits between stocks and bonds. As the first quarter draws to a close, institutional funds could fuel a technical boost to global markets.
“It’s the biggest rebalancing since 2020 in terms of buying equities,” JPMorgan strategist Nikolaos Panigirtzoglou told Bloomberg, adding that inflows of at least $100 billion and as much as $230 billion could contribute to gains of between 5% and 10% to global stocks.
To put the potential buying in perspective, during the pullback in March 2020 that pushed real-money portfolios to be underweight on stocks by as much as $850 billion, the investment binge helped support the 13% gain in the S&P 500 for the following month.
More recently, the retreat in the equities market briefly pushed benchmarks from Europe and Asia into bear market territory. Meanwhile, the S&P 500 has fared better, only declining about 12% since its peak.
Due to the global selling, the value of targeted allocations for some of the world’s biggest funds are now likely overweight fixed income assets or cash. To bring these portfolios back in line with their guidelines, they will have to purchase equities in bulk. For example, U.S.-defined benefit pension plans would require $126 billion in additional equities exposure to meet long-term targets.
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