Autumn market jitters intensify as investors brace for prolonged selloff

Big investors have positioned for this summer's rout in stocks to bleed into autumn on concerns that a broader wave of selling will follow the turmoil originated by US recession concerns and the Bank of Japan wrong-footing currency speculators.

The sudden turning round of crowded equity and foreign exchange trades driving vicious feedback loops of price drops, volatility, and hedge fund selling has eased, with world stocks nearly 2 per cent higher so far this week.

Now, asset managers presiding over hundreds of billions of dollars in investments say they are more likely to continue selling stocks than buying back in with the signs of weakness in the US jobs market and global consumer trends trimming the bar for market aftershocks.

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What is taking the place of the common 'buy-the-dip' mentality, in which investors typically respond to selloffs by making recovery bets, is fear.

"It's not simply now a large financial market accident, which maybe we could describe last week as. It's broader than that," said Mahmood Pradhan, a former IMF deputy director and head of global macro at the research arm of Amundi, Europe's largest fund manager.

He expects investors, who, according to Bank of America, have already cut equity positions and shifted increasingly into cash, to stay cautious.

One of them is Michael Kelly of PineBridge Investments, who runs multi-asset and has about $170 billion of client funds, and has cut back the stock market positions in his funds and may do so further.

"It's going to be very, very volatile in the next two months," he said.

A first US rate cut, expected next month, might be too late to rescue the economy, he added.

The global growth expectations of investors hit an eight-month low.