Buying The Dip Is Suddenly A More Risky Business

  • Written by Zero Hedge
  • Published in Economics
Buying The Dip Is Suddenly A More Risky Business

By Michael Msika and Jan-Patrick Barnert, Bloomberg Markets Live commentators

A lot of investors finally have what they wished for: a chance to buy the dip. The problem is uncertainty is much higher now.

Friday’s selloff, fueled by the emergence of a new Covid-19 variant, brought a firm halt to the market’s exuberance of recent weeks. The Stoxx 600 Index is now more than 5% below its record closing high of mid-November, opening a window for those who have been awaiting weakness to add positions.

“Many investors had been complaining about ever-rising markets that give little entry opportunities,” says Martin Moeller, co-head of Swiss and global portfolio management at Union Bancaire Privee in Geneva. “Here is the next one shaping up, given that in 2022, the easing of supply chains and delayed execution of very strong prior order intake should be supportive for economic growth.”

But, is now the right time to buy? Prior to Friday’s developments, markets had become complacent about a potential resurgence of the virus, both from a fundamental and a technical standpoint. With a new mutation having emerged, much will depend on how it impacts society. A return to restrictions and lockdowns would be a cause for concern.

The probability of that increases with uncertainty over how effective vaccines will be on the new strain, says Peter Garnry, head of equity strategy at Saxo Bank. “As a result, traders are selling off physical companies in energy, mining, financials, and consumer discretionary against healthcare, utilities, and technology stocks,” he says.

The potential impact can be seen in disarray among reopening plays. A Barclays basket of vaccine beneficiaries has now erased all gains for the year, while a...

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