00:00Wei Li of BlackRock writing, we're dialing down tactical risk for now. We turn neutral
00:04across equity markets because overall risk asset pricing is not consistent with
00:09the shock implied by energy markets. Wei, join us now for more. Wei, welcome to the program.
00:14This is something that a lot of people are talking about, a shock in energy and how to
00:19price it in equities. What suggests to you that we're mispriced?
00:24Yeah, so this is how I'm thinking about it right now. The risk feels a bit asymmetric at this
00:32moment. So if we have a peace deal, then we could have a relief rally in markets. But U.S.
00:39equities
00:39are just over 4 percent from the beginning of the conflict, just how much room there is for that
00:46relief rally to go. On the other hand, if we don't have tangible evidence of actions that could shorten
00:52the duration of the disruption, and right now we don't, then current risk pricing is not consistent
00:59with the doable disruption that energy markets are pricing right now. So our energy investors are
01:05telling me that we have already lost about 10 percent of global oil supply, 20 percent of global
01:10LNG supply. Now, driving this inconsistency in risk assets, especially equity assets, could be this
01:19by the deep flow dynamics, right? So before I just came out, I was using the Bloomberg Ask B function
01:26to pull up the flows going into U.S. equity ETFs. It's a really easy function. And actually, the flows
01:33has been going up since the beginning of the conflict, even though sentiment is clearly plummeting.
01:39And I think that has been one big reason behind the inconsistency in market pricing. And because of
01:46this risk asymmetry that I just talked about, we have flattened equity directional exposure to neutral
01:53while leaning into thematics, thematical themes. So, for example, you know, no matter what happens
02:01from this point on, as a result of the events in the Middle East, every company, every government
02:08globally is going to be very focused on energy security, energy independence, and also supply
02:15chain and infrastructure security. So these are the themes that we're leaning into whilst being
02:21indirectionally neutral on equities right now.
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