From precious metals to loans on the brink of default: Investors are flocking to these assets after the coronavirus market meltdown
New York (Apr 26) Periods of widespread selling and cash-hoarding shifted the sands of the investing landscape to reveal new opportunities.
•Several of Wall Street's biggest firms are raising billions of dollars to pile into distressed debt, viewing the Federal Reserve's relief measures as a backstop for ailing corporations.
•Significant spending on coronavirus relief measures will drag on global currencies, Bank of America projected, setting gold up to skyrocket through the economic downturn.
•Even bitcoin is breaching key thresholds, and some investors are turning to the volatile asset for the first time "as a hedge against currency wars," Ed Moya, senior market analyst at OANDA, wrote Thursday.
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Weeks of indiscriminate selling and rotation to cash has left some corners of the market attractive to major institutions and retail investors alike.
Distressed debt, gold, and even bitcoin are currying new favor as popular sectors grow tepid. Trillions of dollars worth of relief measures from the Federal Reserve and the government have stabilized once-turbulent markets and signaled to buyers they can rely on a policy backstop. Firms tracking investor positioning are trying to get ahead of the curve, advising clients to enter underweight areas before a wave of capital follows.
Uncertainty clouding the US's economic future has spoiled some more traditional investment strategies. The stock market's rebound from late-March lows has slowed its pace, leaving economists forecasting everything from a sharp uptick to a bear-market resurgence. Monday's plunge into negative oil prices pushed the commodity market into uncharted territory and added another phenomenon to an already unprecedented year for the financial sector.
With corporate earnings fueling even more volatility to the virus-slammed landscape, investors are targeting gains elsewhere.
Read more: GOLDMAN SACHS: These are the top 11 companies to watch as we enter the best stock-picking environment in over a decade
Sweet and soured debt
The Fed's policy salvo indirectly gave stocks much-sought-after support following precipitous drops, yet credit markets are where the brunt of the aid will be felt. Distressed debt in the US quadrupled to nearly $1 trillion in less than a week as loan health tanked through March.
The central bank addressed the credit squeeze with an alphabet soup of relief programs aimed at keeping firms afloat through the economic freeze. Where corporations brought fresh supply to the debt market, the Fed's lending facilities are poised to drive outsized demand.
"We say 'distressed' has to trade higher before rally ends," Bank of America analysts led by Michael Hartnett said in a Thursday note, adding clients should "buy what the Fed buys."
The policy backstop hasn't gone unnoticed by Wall Street's biggest offices. Howard Marks' Oaktree Capital plans to raise $15 billion for the biggest ever distressed-debt fund, eyeing risky loans as a golden opportunity. The massive debt piles accumulating around the world stand to drive more defaults than during the 2008 recession, Oaktree said in a presentation seen by Bloomberg.
Bloomberg
