Who has the virus dealt full on aces to?

The coronavirus is quietly rediscovering the cards – throughout the global economy and in the market game. Some will get aces, others will get brokers, says Ruchir Sharma, chief global strategist at the American bank Morgan Stanley Investment Management. He lists several trends that could prove to be aces after the pandemic.

Are stock investments like aces in popandemic poker? Yes, but there are reasons to be careful that the virus has given someone a carriage. Following the massive collapse in March 2020, and thus just after the pandemic, stock prices continue to rise. For now, investors expect another good year, as they count on an economic recovery. Ruchir Sharma agrees with this scenario, but points out that governments and central banks have joined the game. Their powerful involvement in the economy threatens to revive inflation and increase bond yields. And that could mean someone else has got better cards.

Incomparable amounts with the period of the previous crisis. In highly developed countries, governments or central banks in response to the crisis of 2008 involved approx. 10 percent. GDP. After the outbreak of the pandemic in 2020, it was over three times as much – about 34 percent. GDP. In emerging economies, it was much less money, but still 6 and 8 percent respectively. GDP.

This mass of money, combined with low unemployment or high welfare benefits like in the US, resulted in a sharp increase in savings last year. In the US, a large number of them have entered the stock markets and are supporting the rise in share prices. When the pandemic is over, consumers will start spending money again. Bream, recently called redditors, may no longer support the boom.

So there are reasons to be more vigilant in the stock market. First, the rise in bond yields has worse consequences for the stock market than most investors believe. Second, a significant amount of the money redditor is committed to may escape the stock market. And thirdly?

“(…) investors saw the pandemic as a passing natural disaster, and its end had already been priced at record high (share) prices,” Ruchir Sharma wrote.

Meanwhile, a return to inflation should rather be expected further increase in yields on debt securities. When the virus struck, policymakers believed that printing and borrowing enormous amounts of money in record time would not accelerate the rise in consumer prices that had been dormant for nearly four decades. But Ruchir Sharma lists four factors that threaten to spur inflation.

The first is related to demographics. The working-age population is declining in the world population, and as labor supply is declining, wages must rise. Second, deglobalizing trends (despite Donald Trump’s departure from the US presidency) are still strong, world trade growth has slowed, and this will restrict competition. Third, productivity will continue to decline, because governments, while saving economies, also save unproductive companies. “Zombification” will increase the costs of enterprises and consumer prices. Fourth – growing public debt may also become a shock that will stimulate inflation.

Investors – not only in the bond market – feel the hot breath of inflation on their necks and therefore real estate enjoys unflagging success. Housing prices in 2020 increased in virtually all developed economies, quite the opposite of the previous great financial crisis.

“There are reasons to believe the boom may continue,” wrote chief strategist Morgan Stanley Investment Management.

The more so that even if inflation starts to bother central banks, they will have problems fighting it. So far, 90 percent. The world’s central banks cut short-term interest rates to record lows, and this caused mortgage rates to drop to a record high as well. In the US, a 30-year loan has an interest rate of less than 3 percent, and even less in Europe.

If inflation returns, central banks will be forced to tighten their monetary policy again. However, it will not happen through quick rate hikes, but through restrictions in bond purchases. Last year, central banks bought around $ 8 trillion in assets, 40 times more than in 2019. The feet do not have to move up quickly.

Dollar holders may be in trouble, as well as the world’s largest economy, the US. Market players can no longer be quite sure that “the rest of the world” will still believe that the US will be able to settle its debts. The U.S. foreign debt increased to over 50 percent in 2020. their GDP, and exceeding this ceiling has often caused financial crises in the past.

The dollar was an ace so far because it had no serious rivals. But it could be Bitcoin as a store of value and as a means of payment, Ruchir Sharma believes. What’s more, the fate of the dollar (and Bitcoin) will be determined by the preferences of young people, and not of the elderly central bankers, who were so far inclined to treat cryptocurrencies with great reserve.

It could be. The commodity boom may return, and their prices are supported by the weakening dollar. Commodity prices after the previous decade of declines “look extremely attractive”. Due to low prices over the past decade, companies have cut their investments in both oil and copper mining. Following the pandemic, the resulting supply bottlenecks will meet increasing demand.

Emerging markets are sure to join the game after the pandemic. These are economies that are often dependent on the export of raw materials and will now benefit from rising prices. But many countries in this group (which also includes Poland) have great potential to increase exports of industrial products. In addition, many countries, such as Indonesia, India, Saudi Arabia, Egypt and Brazil, have undertaken reforms that favor the markets. Meanwhile, the largest emerging markets account for 36 percent. global GDP and only 12 percent. global stock market, with the US accounting for 25 percent GDP and 56 percent markets.

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