Uncertainties over US-China trade war, Brexit, Trump impeachment and a global recession leave investors deeply confused
- Stock markets continue to show signs of bullishness, yet bond markets are struggling and money is flowing into ‘safe haven’ assets. This shows how events weighing on confidence are of a political nature, pushing investors out of their comfort zone
Financial markets tend to oscillate between optimism and pessimism. But, for some time now, the dominant emotion has been confusion, and extreme confusion at that.
Ever since the dramatic sell-off in the final quarter of last year, in which the benchmark S&P 500 equity index fell 12.3 per cent, a widespread, and profound, sense of uncertainty has pervaded markets. The lack of confidence about the outlook for asset prices has given rise to movements and trends that appear at variance with each other.
On Monday, the S&P 500 surpassed the 3,000 mark for the first time since the gauge hit a record high at the end of July. The index has risen a massive 19.8 per cent so far this year, and currently stands a mere 0.7 per cent below its all-time high.
Indeed, global stocks in general have performed remarkably well this year, up 16 per cent. However, a significant portion of the gains are attributable to the fierce rally in American equities. The MSCI All Country World Index ex US, a gauge of stocks that excludes US shares, is up by a less impressive 11.3 per cent.
Signs of pessimism, on the other hand, are just as conspicuous, if not more. Data on investor positioning shows that money has been pouring into so-called “haven” assets at levels not seen since the global financial crisis.
According to Bloomberg, money market funds – cash-like instruments, which are the closest thing there is to a risk-free asset – have attracted more than US$320 billion of inflows over the past six months, the largest flight to safety since the second half of 2008.