By some standards, the global stock market may even turn from recession to prosperity, with high enthusiasm and loose funds pushing up asset valuation, which makes many institutions start to lay out for the era of post epidemic.
Driven by high growth and low interest rate expectations, fund managers have high risk exposure
With the improvement of economic expectation, there are signs of liquidity exit. On November 18, the U.S. Treasury secretary informed the chairman of the Federal Reserve that the emergency liquidity, including the primary and secondary market corporate credit instruments launched earlier this year, should expire on December 31. This signal led to a short-term drop in stock index futures overnight, but the market quickly made up for the short-term fluctuation, as the Fed responded that the liquidity instruments would not withdraw for the time being. The market believes that once the gate of easy money is opened, it is difficult to offset the impact of policies with immediate effect.
This is a particularly strong reason for the bull market: even if the vaccine eventually promotes a stable economic recovery, the Fed cant turn off the tap of funds in the short term; when economic growth and interest rates are depressed, this double benefit will lead to an amazing rise in the stock market.
The latest monthly survey of 190 global fund managers with $526 billion in assets under management by Bank of America found that investors were turning heavily to stocks, small cap stocks and emerging markets. BofA pointed out that fund managers exposure to stocks had risen to the highest level since the beginning of 2018, with two-thirds of respondents believing that the early cycle stage has arrived, and fund managers have shown the most optimistic mood since January 2018. The bank said investors cash holdings in their portfolios fell to 4.1 per cent, similar to the level before the new coronavirus hit global financial markets in January.
Michael Hartnett, chief investment strategist at Bank of America, said falling cash levels are often a sign of high investor enthusiasm. Encouraged by the central bank and government fiscal stimulus policies, as well as optimistic expectations for vaccines, the stock and bond markets have begun to cash in early.
On the day of Pfizers announcement, yields on the US AAA bond index fell 0.72 percentage points to 10%, the biggest one-day decline since May as investors bought the bonds. At the same time, the average interest rate of us junk bonds recently fell below 4.8%, which also shows the markets enthusiasm for junk bonds.
Both small cap and industrial stocks, as barometers of the economy, have surpassed their all-time highs set in 2018 and earlier this year. This rebound speed is amazing. Historical data show that after a recession, it usually takes four to five years for US stock markets to push small and industrial stocks to new highs. After the impact of the new crown epidemic, it took only half a year to complete the V-shaped inversion.
Brown, head of multi asset strategy at UBS asset management, said one of the big changes this year is that as long as economic growth starts to slide, there will be new policy breakthroughs. Once the market is in recession, there is not only monetary but also fiscal policy stimulus, which greatly reduces the tail risk and greatly raises the market valuation level.
Short sellers were caught off guard, losing more than $10 billion
The S & P 500 index rose 8.8% this month on the back of optimistic expectations and is expected to achieve its best November monthly return since 1980. The Russell 2000 index is up 16% in nearly 15 trading days, moving towards its best month in 20 years, and value stocks are in the midst of the biggest rebound.
In less than a month as of November 18, investors betting on the S & P 500 had lost $163 billion to market, according to data compiled by S3 partners.
Technology stocks were the main cause of short sellers losses, with the S & P 500 it index still up 9%. What seemed logical on the surface quickly became impractical: while investors expected technology gains to be unsustainable, this was not the time to short. For example, Mr. Buffett has begun to reduce his positions in apple, but traders who bet on Apples share price have lost nearly $12 billion so far this month.
This unprecedented optimism has led some bearish investors to compare with past booms, believing that the stock market will experience a correction or at least a pause after a rapid rise. Bank of America strategists said it was time to start selling risky assets as the market approached a full bull market.. Kant Fitzgeralds Johnston is still optimistic about the long-term outlook, but he has turned bearish in the short term.
There is no opportunity to pick up junk bonds, and the bond market ushers in the spring
Another area hit by optimism is the junk bond sector, which may have lost its prime investment time. In the first half of this year, the fallen angel junk debt once ushered in a short golden time due to the impact of the new crown epidemic.
After a large number of bond ratings downgrades were classified as junk bonds, the Federal Reserves large purchases of bonds, coupled with improved economic outlook expectations, these bonds, which had fallen sharply, then rebounded quickly. After the big fall in March, the relevant index soared nearly 40%, a record high. Investors have invested $2.2 billion into such ETFs this year, also a record high.
As companies reduce leverage or increase cash flow, these bonds have shown the potential to regain investment grade ratings. Although there is no opportunity for low price leak hunting, for those companies with poor capital turnover, bond issuance has ushered in the spring. Companies rated junk and revenue affected by the epidemic are back in the spotlight.
Before the company raised funds, the credit rating of other chicken suppliers was grade C, which was the lowest level of garbage grade, so it was very difficult to raise funds. Some fund managers in fidelity Europe pointed out that under the favorable stimulus of vaccine news, issuers of low-grade bonds were easier to obtain funds.
With falling borrowing costs and strong demand from investors to buy bonds or make loans, the bond market is now an attractive alternative to equity financing, said bank of Americas co head of global capital markets, dekari.
David Kelly, JP Morgans chief global strategist, said the average 60 / 40 portfolio of global stocks and US bonds is currently expected to return only 4.2% annually over the next 10-15 years, compared with 5.4% a year ago. Since 1980, the compound annual growth rate of such portfolios has been 10.2%. Deutsche bank asset management expects an annual nominal return of 5% on the MSCI global index over the next 10 years, noting that this represents about half of investor returns over the past decade.
There are also non paying short sellers who have increased their bets in November to see short positions continue to rise by $3 billion. These bears do not deny that the economic damage caused by the new outbreak is not as serious as originally expected, and the response of policy makers is very rapid, but they believe that the risks still exist.
Nevertheless, many institutions have begun to lay out long-term investment in the post epidemic era, especially those companies and industries that have the ability to maintain high growth in the next 10 years. The introduction of 5G technology in the world has promoted the growth of robots, autopilot, artificial intelligence, data analysis and network security, and these areas have become the object of concern for many organizations.
Another area of rapid growth is health care. The agency expects the global population over 65 to grow by 60% to 1 billion by 2030, which will require more investment in health care. Unlike technology stocks, the rise in the healthcare sector is driven mainly by profits, not by valuations, and the long-term valuations of the health care sector look attractive, said Mr. dayash, chief strategist at BCA. Research. At present, medical component stocks of mainstream index account for a relatively high proportion. Among the 20 major companies in the Stoxx 600 index, the medical industry ranks first with a share of 15.6%. In the Russell 2000 index of the United States, the healthcare sector ranks first with nearly one fifth of the total. Institutions expect that if the medical insurance sector can exceed the expected development, it will help to boost the performance of the stock market and improve the low return expectation. In addition, the market also prompted investors to rush to alternative assets and private equity. But for investors willing to lock in their money for more than 10 years, private equity, real estate and global infrastructure are more attractive than the current market. Source: China Fund News Editor in charge: Yang Bin_ NF4368
Another area of rapid growth is health care. The agency expects the global population over 65 to grow by 60% to 1 billion by 2030, which will require more investment in health care. Unlike technology stocks, the rise in the healthcare sector is driven mainly by profits, not by valuations, and the long-term valuations of the health care sector look attractive, said Mr. dayash, chief strategist at BCA. Research.
At present, medical component stocks of mainstream index account for a relatively high proportion. Among the 20 major companies in the Stoxx 600 index, the medical industry ranks first with a share of 15.6%. In the Russell 2000 index of the United States, the healthcare sector ranks first with nearly one fifth of the total. Institutions expect that if the medical insurance sector can exceed the expected development, it will help to boost the performance of the stock market and improve the low return expectation.
In addition, the market also prompted investors to rush to alternative assets and private equity. But for investors willing to lock in their money for more than 10 years, private equity, real estate and global infrastructure are more attractive than the current market.