Veteran stock picker Matthew Kidman describes the current market as the most volatile he has seen in his 28 years in funds management. Heightened turbulence this week stems from conflicting messages surrounding peace talks between the United States and Iran. A high-stakes ultimatum issued by US President Donald Trump has unleashed wild swings across equity markets, leaving investors on edge.
Kidman, managing funds at Centennial Asset Management, has significantly increased the cash holdings in the company’s $260 million Australian small-cap fund to nearly 40 per cent. This defensive move, far exceeding the typical 5 per cent level, reflects a cautious approach as he awaits clearer signals regarding Iran’s willingness to discuss reopening the Strait of Hormuz oil route. According to Kidman, the Australian economy is particularly vulnerable if the situation doesn’t improve within the next few weeks, with potential fuel shortages and service station closures looming post-Easter.
The CBOE Vix Index, Wall Street’s fear gauge, has remained elevated since the onset of the conflict, indicating sustained anxiety in the market. Major investors are increasingly hesitant about equity markets, with cash holdings at fund managers reaching a six-year high, according to a recent Bank of America survey. This shift means trading is increasingly dominated by hedge funds and quantitative investors, who are highly reactive to news, which amplifies market volatility.
Schroders, a British asset manager, has downgraded equities to “negative,” citing the surge in oil prices and broader disruptions to energy supply. Westpac head of commodities strategy Robert Rennie notes that even if the Strait of Hormuz reopens, it will take many months before energy markets approach normality. Given the uncertainty, Schroders is favouring mega-cap technology stocks and the US dollar, while adopting a more defensive posture overall.
