World of equity trading has seen it all in the current year. With 11 months of the year already gone, the global benchmark equity indices are near record highs, having comfortably rebounded following the mayhem seen in March-April. Indian equities have followed suit too and most stock advisory companies are estimating a further upside in benchmark indices in next year. While an extraordinary year is about to wind up in coming weeks, global Covid-19 cases continue to stay elevated and so does the risk appetite of investors. What does it mean and what important lessons the current year has provided to the world of investing? Here is a quick look at top five takeaways!
Cult of equities continues: Equities or share market investing, as we know is considered to be the most potent and efficient asset class when it comes to long term wealth building. The biggest takeaway for the investing community from the current year is a reinforcement of the age old cult of equities. Despite of the torrid meltdowns witnessed in the wake of Covid-19 and subsequent lockdowns, major global stock markets delivered a supreme performance and most of them managed to hit fresh all-time highs as a wild upswing continued.
Gold gets going then going is tough: Gold is a special commodity and has always done well to mitigate losses in times of market stress. Historically, the yellow metal serves as a hedge against inflation and currency risk –a role it played perfectly as global equity markets melted in first few months of the year. The yellow metal shot up all-time highs near $2100 per ounce in world markets and stayed mostly elevated even as global equities edged up in second half of year. World Gold Council (WGC) noted that gold can provide liquidity with no credit risk and improve overall portfolio performance. Gold is a clear complement to stocks, bonds and broad-based portfolios, WGC stated.
FII’s keeping their faith in India: A strong domestic demographic setup clubbed with bright prospects of an economic rebound next year pushed up the overseas investments in India at a record pace. FII’s sold heavily in March- April, withdrawing more than Rs 68000 crore of equity as local benchmark Nifty 50 tanked to four year low on heavy selling due to COVID-19 pandemic. Buying picked up from June and strengthened thereafter. The total buying by foreign institutional investors (FIIs) has crossed Rs 60000 crore in a month in November – highest ever mark.
Economic realities matter a lot: Notwithstanding the divergence between tepid economic trends and soaring equities in the first half of the year, a landmark event showed that economic laws of demand and supply still matter a lot when it comes to asset pricing. The crude oil futures tanking below $0 per barrel and testing -37 per barrel is an eye opener and indicates that the basic nature of financial asset pricing is still linked to underlying economic forces.
Ultra-low interest rates here to stay: The major global central bankers reacted with unprecedented alertness and coordination to the Covid-19 crisis. The interest rates were slashed to record lows and a massive amount of liquidity flooded the financial markets, lifting share markets higher across the globe. The G20 Finance Ministers & Central Bank Governors have noted that while the global economy is experiencing a sharp contraction in 2020 due to the impact of the COVID-19 pandemic, the outlook is less negative with global economic activity showing signs of recovery. However, the recovery is uneven, highly uncertain and subject to elevated downside risks. G20 central bankers reaffirmed determination to continue to use all available policy tools as long as required to safeguard people`s lives, jobs and incomes, support the global economic recovery, and enhance the resilience of the financial system, while safeguarding against downside risks. This essentially means that ultra-low interest rates are here to stay for an extended period of time.
Apart from the above observations, few other notable factors are the soaring food prices, ultra-low government bond yields around the globe and a fascinating run up in global IT stocks. The cult of equity market trading props up prominently amid all other factors though and could global stocks continue to recover in a sustained manner following the massive rebound this year. The biggest underling threat to the global share market investing was a potentially large scaled shock to the consumer spending following Covid-19. However, business and consumer sentiments have picked up in recent months across major economies, kind of justifying the sharp rally in equities. On 27th November, Black Friday, the US consumers spent $9 billion on online shopping, marking a 21.6% over the same day in 2019, Adobe said, according to media reports.Also Read: Why is financial planning important for investors?