Stockholm (HedgeNordic) – Stock and bond markets are intricately interconnected and usually reflect similar information about economic health and investor sentiment. However, stocks and bonds have lately been transmitting contrasting messages, as noted by Norwegian fund manager Lars Semb Maalen-Johansen.
“The bond market prices in a longer period of high interest rates and high inflation, while the stock market prices in rapidly falling inflation and interest rates,” Lars Semb Maalen-Johansen tells Norwegian newspaper Finansavisen. “One of these markets must be wrong,” says the portfolio manager of Global Assets Dynamic, a quantitatively-managed equity fund that mitigates portfolio downside risk using VIX-based products.
“One of these markets must be wrong.”
In an interview with Finansavisen, Maalen-Johansen expresses concerns about stocks with a high correlation to global stock market indices, expecting them to perform poorly during the autumn. “The winners in the first half of the year were large global shares and index funds, and artificial intelligence (AI) drove much of the upturn,” he points out. However, a decline in AI-related Google searches suggests that the short-term AI bubble may be approaching its peak, according to Maalen-Johansen.
As a consequence, Maalen-Johansen is steering away from chip-maker Nvidia, currently priced at nearly 50 times estimated earnings, almost twice as much as a year ago. Additionally, he highlights that the FANG stocks – Meta, Amazon, Netflix, and Alphabet – are also richly priced, with a price-to-earnings (P/E) ratio of 41.2x. Instead, Maalen-Johansen prefers companies that are not very sensitive to economic conditions, have a relatively low P/E ratio, offer solid direct returns in the form of dividends, and exhibit a lower correlation with global stock market indices.
One such example is Telenor, which pays an 8.8 percent dividend and has displayed price performance almost independent of the global stock market over the past year. “The company delivers a core service and does not depend on the growth of the world economy,” Maalen-Johansen tells Finansavisen.