Why the world needs stock market bulls who are upbeat about economic recovery

Stock market optimism will translate into greater consumer spending. Now is not the time to consider fiscal austerity, debt deflation or balance sheet restructuring. Sustained fiscal and monetary super stimulus will be needed for years

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A bronze sculpture of a bull faces an electronic board showing the top 10 active securities on the Hong Kong stock market at Exchange Square in Central on June 2. Photo: Winson Wong

Published: 5:00pm, 29 Jun 2020Updated: 10:27pm, 29 Jun 2020

Don’t knock the stock market bulls for being so upbeat about recovery. It is very clear that growth forecasts for 2020 look awful, but financial markets should trust their instincts that things are steadily improving and recovery will eventually prevail.

The end of lockdown for many countries, the opening up of “main street”, hopes for a breakthrough on new vaccines to fight the coronavirus and all the power of economic stimulus being applied by governments and central banks make a pretty convincing case for recovery.

The dogged rally by stocks in recent months and the gradual steepening in government yield curves underline that recovery momentum is already growing.

Governments are urging people to go out and spend and businesses to invest more as part of the return to normality, but maintaining financial market euphoria is just as important in building the right preconditions for revival.

Policymakers must ensure financial markets remain in good cheer to stand any chance of getting global growth back above 4 per cent in the next few years. When financial markets start to look “frothy”, that’s generally the time authorities begin to fret about excessive speculation, irrational exuberance and the build-up of potentially dangerous bubbles .