The week had really started energetically for the actions of the United States then turned into losses. Due to the disappointing economic data from China and Europe, global stocks fell on Friday.
It should be noted that the Dow Jones Industrial Average closed close to 500 points on Friday. Likewise, the figures that have reflected the growth of China’s retail industry and sales are better than expected. And it exceeded expectations. In such a way, this produced an effect on the Asian actions causing its descent during the night.
For its part, the decline in US stocks suppressed the week’s gains with small-cap stocks among the most affected. However, small capitalizations, as measured by the Russell 2000 Index, have lost approximately 17% in the last 3 months. While, on the other hand, the S & P 500 large-cap index lost 9% during the same period.
Refuge in instruments with greater liquidity
It is necessary to emphasize that some investors have sought refuge in instruments with greater liquidity. In fact, Pimco’s Chief Investment Officer, Dan Ivascyn, told Bloomberg Radio that investors should consider sourcing lower-risk liquid assets to defend themselves against rising volatility and widening credit spreads.
Likewise, Ivascyn expressed “The credit markets, in particular the non-financial segments of the corporate credit markets, are where we see the most long-term risks”.
Added to that, he said “If I were allowed an investigation, and only one, a good investigation would be to analyze the broadcast against the story. I think that when you look at leveraged loans, you look at other segments of the corporate credit universe, the issue is very, very high”.
And I add, “If we look at the outstanding totals in the CLO market … the total issue today is pretty much the maximum of the ABS CDOs before the financial crisis”.
Ivascyn does not manage to match the magnitude of today’s CLO risk with that experienced before 2008. If so, he suspects that the situation has created a substantial risk for the overestimation of fundamental elements.
Source: Albert Lu | Sprott Media
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