Carson Block, famous for finding overvalued companies to bet against, said most investors would now do better to just buy the biggest US stocks as steady inflows push the market ever higher.

While there are concerns over valuation after the S&P 500 Index repeatedly hit new records this year, the Muddy Waters Capital LLC founder said inflows from retirement funds will stay a key driver for further gains, especially for the most heavily-weighted names.

“It probably pays to not think too much, just close your eyes and buy probably Magnificent Seven,” Block said in an interview with Bloomberg TV, referring to the grouping of mega-cap stocks. “In the past few years, I have looked back on my career as an activist short seller and done the math and felt like I probably could have just been” long the S&P 500, he added. 

Block’s comments come amid renewed investor optimism towards the cohort of the top technology names — Tesla Inc, Apple Inc, Microsoft Corp, Alphabet Inc, Amazon.com Inc, Nvidia Corp and Meta Platforms Inc — after a lacklustre quarter when the Federal Reserve’s interest-rate cut spurred a rotation into other sectors. 

The S&P 500 just capped a sixth straight week of gains, thanks to a slew of solid corporate earnings and signs the world’s largest economy is holding up. The US benchmark gauge has notched 47 closing records this year, with nearly one third of its constituents notching 52-week highs last week.

“As long as the labour market is reasonably strong in the US — which it is — you’re not going to see outflows,” he said. “You’re just going to continue to see inflows, especially in those most heavily weighted names in the S&P 500.”

Meanwhile, Block reiterated his aversion towards China, a market he has been calling “uninvestable”. A long-time China sceptic and one of the most famous short sellers when it comes to the Asian nation’s stocks, he has instead preferred investing in Vietnam, where Muddy Waters has launched a long-only fund.

Despite a recent rally spurred by Beijing’s stimulus blitz, Block said the issues of corporate governance, policy “capriciousness” and geopolitical issues remain big hurdles. 

“From a medium to long term perspective, I once again just still fail to see how having money committed to China makes sense,” Block said, adding that he doesn’t have an opinion on China on a short-term basis.

“At the end of the day, China, in contrast to Vietnam which we are very constructive on, doesn’t feel like it really needs foreign capital. And I don’t think it intends to be accommodating foreign capital on a long-term basis,” he said.

  - Bloomberg