A graphic with no description
A graphic with no description
A graphic with no description

A key measure of risk appetite in the markets has shifted into defensive territory, suggesting that some investors are beginning to brace themselves for an economic slowdown or financial stress.

Global healthcare stocks have recently outperformed the technology sector to the greatest extent since mid-2016. They gained 8.5 per cent in the three months to mid-August, according to data from Thomson Reuters, while global tech stocks rose 4.1 per cent.

In the preceding three months healthcare stocks had risen just 1.2 per cent while tech stocks delivered 7.6 per cent gains.

A rotation by investors from growth stocks such as tech to stocks with stable returns like healthcare is generally regarded as a defensive market move.

“We are seeing a lot of leading indicators already starting to turn down; year-on-year trade growth is now decelerating quite rapidly and we are starting to see a rotation within markets,” said Ian Harnett, chief strategist at Absolute Strategy Research.

The volume of world trade increased 0.4 per cent in the six months to May, according to the latest figures from CPB, the Netherlands Bureau for Economic Policy Analysis — down month on month from 2.8 per cent.

It was the slowest growth rate since the six months to October 2016.

A recent survey of investors found that a growing number of investors say the current moment is the peak for corporate financial performance.

Only a net 5 per cent of fund managers surveyed by BofA thought global profits would improve in the coming 12 months, down from a net 44 per cent in January.

A defensive shift by markets is negative for equities in general while helping to buoy bonds, Mr Harnett said. The tech sector in particular, he argued, could be vulnerable to the rising geostrategic tensions.

“Trade wars could morph into tech wars, with a lot more talk about the tech sector and whether the US administration will remain relaxed about how tech companies are fostering the globalisation that it seems Trump is looking to reverse,” he said.

Read more: Investors pile into US stocks, BofAML survey shows

Get alerts on Equities when a new story is published

Copyright The Financial Times Limited 2022. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article