Due to concerns about the US stock market downturn, hedge funds have reduced their bets on the rise of US stocks to the lowest level in at least a decade and heavily increased their positions in European stocks.
According to an article in the Financial Times on Tuesday, data from Goldman Sachs Prime Brokerage showed that hedge funds' investment weight in the US stock market has dropped to the lowest level since 2013, while their bets on European stocks have reached a historical high.
Alison Savas, Investment Director at Australian investment firm Antipodes Partners, believes that the rise of US stocks driven by tech giants such as Nvidia, Apple, and Amazon has led to overvaluation of some companies relative to their earnings potential.
&#34;It's hard to justify the price-to-earnings ratios of many (US) tech companies,&#34; Savas said. &#34;We agree that Nvidia is a great company, but as value investors, we can't do that.&#34;
She also said, &#34;We are investing in mispriced multinational companies in Europe that are priced lower than similar companies in markets like the US.&#34;
Amidst the wave of artificial intelligence, the Nasdaq Composite Index has achieved its best performance in forty years in the first half of this year, with an increase of about 31% year-to-date, while the S&amp;P 500 Index has risen by about 15%. However, as the Federal Reserve further raises interest rates to combat inflation, some fund managers believe that the narrow upward trend in the market could soon reverse.
At the same time, European stocks have shown weaker performance, with the STOXX Europe 600 Index accumulating a modest increase of about 5% year-to-date, while the FTSE 100 Index in the UK has experienced a decline.
Goldman Sachs analyst Vincent Lin wrote in a recent report to clients, &#34;Hedge funds are starting to position themselves for downside risks in the US stock market.&#34;
Samantha Rosenstock, Head of Investment Research at Man FRM, stated that most of the market's returns are driven by a group of overvalued stocks, and funds that seek to profit by picking individual winners and losers have few opportunities in the market.
&#34;Both bullish and bearish managers believe that there is not much difference in (valuation) between companies,&#34; she said. &#34;On the contrary, European stocks have lower valuations and are therefore more attractive.&#34;
Recently, there have been frequent voices of bearishness on US stocks and bullishness on European stocks. According to the latest Markets Live Pulse survey, more than 50% of respondents believe that the upcoming earnings season will be unfavorable for US stocks. Citigroup believes that compared to US stocks, European stocks are the cheapest they have ever been, while according to Morgan Stanley, the UK stock market is currently the cheapest in the world.
However, not all analysts hold a pessimistic view on US stocks.
A senior executive from a large US bank's wealth management division warned against betting on Europe outperforming the market. He pointed out that despite rising interest rates, the US economy has proven to be resilient so far.
&#34;Most people expect an economic downturn and believe that US valuations have exceeded reality,&#34; the executive said. &#34;But the stock market has risen by about 10% in the past month or two.&#34;

"It is difficult to prove that the P/E ratios of many (US) technology companies are reasonable." "European stocks have lower valuations, making them more attractive."

US stocks peaked? Hedge funds reduce bullish positions to a ten-year low, while betting on European stocks reaches an all-time high.