Barclays: “Expect $130 Billion More In Systematic Selling Over Next Few Days”

Friday, October 12, 2018
By Paul Martin

by Tyler Durden
Fri, 10/12/2018

A battle royale of Wall Street quants has erupted.

In one corner, we have JPMorgan’s chief quant, Marko Kolanovic who moments ago said that the selling pressure from systematic, vol-targeting strategies such as risk-parity, CTAs, and trend following is mostly over and that the “current setup favors buying the dip.”

In the other corner, Barclays’s quant Manesh Deshpande completely disagrees with Kolanovic, and overnight wrote that while “some signs of capitulation are emerging” he thinks that “more selling is yet to come.”

A lot more.

Deshpande, like so many others in recent days, writes that Thursday’s sell-off was similar to the Feb 2018 liquidation, in that there was indiscriminate selling across equities and the ratio of put to call volume increased significantly.

However, unlike Kolanovic who is confident that the selling has now been mostly exhausted as we discussed earlier, Desphande warns that there are no signs of ETF selling which accompanies sell-offs.

In fact, over the past few days ETF flows have not turned negative yet and in fact have been mildly positive ($0.59 and $0.34 billion for the 10th October and 11th October, respectively). Thus this class of investors has not capitulated yet, according to the Barclays quant. Looking at history as a guide, ETF outflows between Feb 1st and Feb 9th earlier this year was ~$35Bn or 1.7% of AUM. Given the higher AUM currently, ETF investors are likely to sell ~$40Bn over the next few days.

The Rest…HERE

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