Bank of America launches “reverse trading” strategy: betting on bonds and Chinese assets, shorting AI bonds, and being wary of dollar risks

The Zhitong Finance App learned that Bank of America Securities recently launched a series of “reverse trading” strategies, believing that as some of the most entrenched investment narratives in the market begin to lose momentum, these reverse layouts are expected to reap excessive profits. Bank of America's reverse thinking covers various fields such as bonds, the US dollar, artificial intelligence, and the upcoming US midterm elections. Many transactions aim to profit from the current reversal of mainstream investors' positions.

In Bank of America's reverse “ABB” transaction, the bank clearly opposed the current market consensus to “buy anything but bonds” (Anything But Bonds). Bank of America is optimistic about long-term assets that are currently being snubbed, including real estate investment trusts (REITs), biotech ETFs (XBI), regional bank ETFs (KRE), and small-cap stocks.

Bank of America believes that another significant rise in bond yields will cause increasingly serious damage to Wall Street and the US economy as a whole, and may force policymakers to intervene. The bank believes that this outlook may create an environment for long-term assets to regain market favor.

The bank has a bullish stance on the Hong Kong real estate sector, believing that the Chinese real estate market is stabilizing or recovering, so it may provide an opportunity for this sector, which is still deeply shunned by global investors.

Bank of America's “ABD” transaction acknowledges that there is a widespread “buy anything but the dollar” (Anything But the Dollar) sentiment in the current market, but believes that gold is still the purest tool to express opinions such as the continued depreciation of the dollar, asset inflation, and potential pressure on the bond market.

The bank also pointed out that changes in the geopolitical landscape in the 2020s and the “economic war” between the US and Iran may support gold by driving market demand for safe haven and safe assets.

In the field of artificial intelligence, Bank of America has adopted a more refined reverse position. Although the market's long-term consensus on AI stocks remains firm and bullish, the bank advises investors to consider a “shorting AI bond” strategy, believing that even if the US government can influence or suppress yields, a meaningful decline in capital costs is likely to require deflation or recession.

At the same time, Bank of America proposes to build a barbell arrangement around AI stocks — increasing holdings in commodity and natural resources companies. These companies will benefit from the huge demand for energy and materials brought about by the US-China AI arms race.

At the same time, the Bank of America is planning for the likely more destructive outcome of the US midterm elections in November. Although market consensus expectations did not point to the Democratic Party being swept away, the bank proposed hedging this scenario by shorting financial stocks.

The Bank of America pointed out that if the Democratic Party wins the Senate and the Republican Party loses the Texas governor seat, US stocks may fall by more than 10%, and US dollar and bond yields will weaken before the end of the year.

The bank quoted data as showing that US President Trump's overall approval rating is 39%, the support rate for economic issues is 36%, and the approval rate for inflation issues is only 30%, all of which are far below the pre-war average (46%, 42%, and 38%, respectively). This indicates that as the midterm elections approach, the importance of political risk to the market is likely to increase.