Kolanovic Blames CTAs For Market Liquidation, Says BTFD

Continuing the tradition of never seeing a dip he didn’t want to buy, JPMorgan’s Marko Kolanovic took one look at today’s liquidation puke and urged the bank’s client to buy it.

Completely ignoring the sharp change in market fundmanetals, where it is now up to China to reverse the risk puke by rescuing Evergrande (or else suffer a Lehman-like collapse), something Beijing has so far refused to do, Kolanovic instead blamed CTAs for exacerbating selling flows in an “environment of poor liquidity”, and said that it is only a matter of time before normality is restored and just three months before the S&P hits the bank’s upward revised price target of 4,700, to wit:

The market sell-off that escalated overnight we believe is primarily driven by technical selling flows (CTAs and option hedgers) in an environment of poor liquidity, and overreaction of discretionary traders to perceived risks.

So enamored is Kolanovic with his view that selloffs are only technical in nature, that he didn’t even bother to highlight the fundamental nature of said “risks.” Why? Because the Fed of course, and its $120BN in monthly QE whose taper may well be delayed indefinitely now that stocks are crashing. He goes one:

However, our fundamental thesis remains unchanged, and we see the sell-off as an opportunity to buy the dip. We remain constructive on risk assets and last week upgraded our S&P 500 price target, given expectations of a reacceleration in activity as the delta wave fades and better than expected earnings. Risks are well-flagged and priced in, with stock multiples back at post-pandemic lows for many reopening/recovery exposures; we look for Cyclicals to resume leadership as delta inflects. We remain OW Japan equities on tailwinds from political changes and a cyclical upswing, and favor EM equities given valuations and healthier macro fundamentals. We stay short US duration given still rich valuations and the prospect of a hawkish Fed. DM Credit fundamentals continue to improve and are supportive of tight spreads, but we revised our default forecast higher in EM Asia. In Commodities, we remain bullish on Oil with the market in deficit, but are bearish on Gold on expectations of higher yields.

To be fair, JPM’s kneejerk response to tell clients to buy any selloff has been the right one so far, although it is much more mechanistic than actually analytical, and as evidence here is the track record of JPM when it comes to Evergrande stock itself. With the stock price imploding, the bank told its clients to buy it all along… until Sept 16 when the bank finally said to Sell.

Will this also be the time when following JPM’s buy recos finally ends up crushing its clients? Tune in next week to find out.

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