Investors Bullish on European Gas Futures Amid Strategic Shifts

Key Takeaway

• Investment funds' net-long positions in Dutch gas futures hit the highest level since February 2022, signaling strong bullish sentiment on European gas.
• Balyasny Asset Management expands into physical natural gas and power trading in Denmark, reflecting a strategic shift towards commodities.
• Global fund managers are reallocating investments from the US to Europe and Asia due to overvaluation concerns and attractive growth prospects elsewhere.

Bullish Bets on European Gas

Investment funds have increased their net-long positions in benchmark Dutch gas futures for the fourth consecutive week, reaching the highest level since February 2022, according to data from the Intercontinental Exchange Inc. This surge in bullish sentiment comes amid concerns over potential supply disruptions, geopolitical risks, and competition with Asia for liquefied natural gas cargoes. Despite the summer season, which typically sees lower demand, the focus remains on replenishing fuel inventories for the upcoming winter. The rise in net-long positions occurs even as long-only contracts by money managers saw a slight decrease of 1% in the week leading up to May 3.

Balyasny's Commodities Expansion

Balyasny Asset Management is establishing a unit to trade physical natural gas and power in Denmark, aiming to capitalize on the lucrative commodities market. The hedge fund, managing approximately $21 billion in assets, is in the process of building out its portfolio and systems for trading. Kristian Junker has been hired as a senior portfolio manager to oversee this expansion. Balyasny's move into physical trading is part of a broader strategy to leverage arbitrage opportunities and potentially reduce risks through natural hedging. The firm has significantly increased its focus on commodities over the past four years, with commodities now constituting about 12% of the fund’s capital allocation.

Shifting Investment Landscapes

Global fund managers, including Amundi and Pictet, are reallocating investments from the US to Europe and Asia, citing overvaluation in US markets and more attractive growth prospects elsewhere. This shift reflects growing skepticism towards US exceptionalism, as the US economy shows signs of slowing down amidst high inflation rates. European and Asian equities are becoming more appealing due to their better valuations and inflation outlooks. Pictet Asset Management is focusing on consumer goods, banks, and UK stocks, while Amundi is underweight on US equities, favoring UK stocks and maintaining a neutral stance on Europe. T. Rowe Price is increasing its exposure to Asian equities, attracted by the region's strong domestic growth stories and more attractive valuations.