Looking into 2023, given their current positioning is only slightly positive we see scope for equity positions by CTAs to revert to at least their longer term average of 0.5, which would imply a net demand of around $60bn, or an improvement of around $140bn. Equity L/S funds is estimated to have declined from 0.684 in the end-2021 to around 0.1 currently which implies a big demand deterioration of $1.4tr in 2022 relative to 2021. For 2023, assuming a reversion to a neutral beta of 0.5 this implies net equity demand of around $830bn or a demand improvement of $2.2tr in 2023 relative to 2022.
Where does this leave us for next year in terms of the overall equity demand/supply balance? Assuming mean reversion in the equity betas of institutional investors and adding up the demand flow changes mentioned above for 2023 relative to 2022, we come up with equity demand/supply improvement of around $3.3tr in 2023 after a net deterioration of $2.1tr in 2022. In other words, a simple reversion to mean in positioning would imply that this year’s equity demand/supply deterioration will be reversed in 2023.
- J.P. Morgan Strategy
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