Macro Outlook – Market Turmoil 2020.
Published on 19th March, 2020.
Are you surprised by the immediate Sharpe correction taking place in equities around the World, well surprise was already there since last couple of years.. Equities in US had a dream bull run, defying all logics and fundamentals for a prolonged period of time. COVID-19 is certainly a huge trigger. It will certainly reduce the growth activity around the World but more importantly has shaken the fragile pillar of such rally – A disruptive Growth, the load will shift on the rest other one for sure – Liquidity and regulator around the World will try to strengthen this the remaining one only. The building will not collapse but will be tilting south.
We have analyzed the outlook on the different asset classes below –
Equities – The real impact of growth slowdown because of COVID-19 will be felt after 1 to 2 quarters when the companies declare their results, the same is being discounted in the prices today, margin calls must have already got triggered at many brokerages around the World, leverage is playing at its best destructive power today. There has been a huge amount of money flown in ETFs & Indices based funds in last few years swelling the valuations of stocks constituting Indexes, the fall should also be in line while broader markets should outperform during this fall.
Bonds – The ones in marginal positive yield are falling close to zero. Healthy emerging market debts likely to result in double digit for the time being. In medium term, the leveraged derivative Bond market may prove to be another black swan in developed economy just like the collapses of CDOs in 2008.
Gold – The real king of these times. The fading confidence in currency, declining real growth around the world makes it a winning bet.
Oil – Not likely to revert back soon, unless US elections are over.
Indian Economy – Bewildered by Global turmoil and domestic banking crisis. We should be ready to see further cuts on indexes. Yes, Bank has gone fearing the contagious for other Private Banks too. We don’t know what is lying ahead but one thing is certain that government has not allowed any bank to fail in past and will not allow to do so in current, ultimately the government can print money to make good of the losses.