Wednesday, 27 May -- Full Circle, page-92

The apostles of "value investing" have called the top of the COVID-19 equity rally.

The closely watched GMO fund has been liquidating its holdings on US and European stock markets and buying hedges at a breakneck pace over recent days, warning clients that the explosive surge in prices since late March has decoupled from fundamentals and is becoming treacherous. "The huge reversal does not make any sense," it said.

The group's main fund has turned outright short, taking large negative positions on equity indices through futures contracts. "It is going to be very difficult to come out of this pandemic unscathed. We have a pretty strong view that with so much extreme uncertainty, equities should be cheap. Quite simply, they are not," said Tommy Garvey, GMO's asset strategist.

"We think the long-term return on US equities is going to be negative and prices will have to drop even below the March lows to be attractive," he said. This implies a 30 per cent fall in the S&P 500 index to clear the froth and restore plausible valuations.