The ghost of The Big Short returned to make a cameo appearance just after Halloween. The timing could not have been more perfect. It happened just when most of the AI ecosystem stocks were close to their peak valuations.
The way it made an impact was also remarkably stunning. The same trader of The Big Short fame was again making a big bet against the most frothy parts of US equities. This news came out of the regulatory filings of the trader.
The news made an immediate impact, and several traders rushed to align their trades with the Big Short trader. This is now causing a rethink in the minds of the most diehard bulls.
Investors who were completely disinclined to sell these stocks are now showing some willingness to take profits. Those who still don’t want to sell are questioning the recent track record of the Big Short trader.
Overall, the jury on where this trade in the US market is heading seems to be deeply divided. The acknowledgement of risks is still not leading to a decisive shift in market direction. The coming weeks will likely see that shift take a clearer shape.
If the US markets indeed see the bulls losing their mojo, then we could see the returns of the year being lost within weeks. This can have consequences for global markets in general, and the Indian market in particular.
While our markets did not reflect the bullish trend of the US market during most of the year, they could still fall in sympathy with the US market when it happens. This risk is real, and equity portfolios must position themselves correctly to counter it.
Flows have generally been moving out of India, and the return of FIIs could also get further delayed if the US market correction happens. All these prospects make portfolio positioning the top priority for every investor.