Stock markets: the folly of following sports punters betting on a quick economic recovery

Name: Salmon import ban and partial lockdown for Beijing after new Covid-19 cases in Chinese capital
Uploaded: 2020-06-18T17:00:13.000Z
Duration: 1 min 58 s
Description: Salmon import ban and partial lockdown for Beijing after new Covid-19 cases in Chinese capital

Stuck at home, more and more frustrated young people and first-time investors are turning to stocks. They tend to be much more bullish than institutional investors about the post-lockdown recovery, and are contributing to the market froth

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Some of the stocks preferred by retail investors include companies facing bankruptcy, such as car rental group Hertz. This is fuelling concerns about a “dash for trash”. Photo: Reuters

Nicholas Spiro

Nicholas Spiro is a partner at Lauressa Advisory, a specialist London-based real estate and macroeconomic advisory firm.

Published: 1:00am, 19 Jun 2020Updated: 2:54am, 19 Jun 2020

The bullishness in financial markets in the face of the worst recession since the Great Depression shows no signs of abating.

On Tuesday, Bank of America published the findings of its latest fund manager survey, conducted earlier this month. It showed that investors have slashed their holdings of cash by the most since August 2009, are more upbeat about global growth and have increased their allocations to equities.

Over the past few weeks, markets have shrugged off brutal contractions in economic output across the globe and increasing signs of a resurgence in Covid-19 infections. As if a spike in new cases in several key states in America is not bad enough, Beijing is now suffering its most severe outbreak since China claimed success in keeping the virus at bay.

Yet, markets appear relatively unfazed. While the benchmark S&P 500 index plunged almost 6 per cent on June 11, revealing the fragility of the rally that began in late March, the massive liquidity injections provided by the world’s leading central banks are encouraging investors to take a glass-half-full view of the post-lockdown recovery.

Although the World Bank expects the global economy to shrink by a staggering 5.2 per cent year on year in 2020 – an even bleaker forecast than the 3 per cent contraction predicted by the International Monetary Fund – markets are taking comfort from the stronger-than-anticipated rebound in economic activity.

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Salmon import ban and partial lockdown for Beijing after new Covid-19 cases in Chinese capital

On Tuesday, the US Commerce Department reported that retail sales rebounded almost 18 per cent month on month in May, more than double analysts’ expectations. Citigroup’s US Economic Surprise Index, which measures the degree to which data comes in above or below expectations, has hit its highest level on record.