Macroscope | Why overpriced stock markets are headed for a major correction
- Low bond yields caused by central banks’ ultra-loose monetary policies leave income-starved investors with little choice but to remain invested in equities
- The combination of ever-loftier valuations and rising volatility associated with the withdrawal of stimulus will eventually prove too much for stock markets
A picture is worth a thousand words, especially in financial markets, where shifts in sentiment and competing narratives make it difficult for investors and commentators to discern the themes and trends that determine the performance of asset prices.
Reams of data hit the newswires every day, invariably providing little insight into the key factors driving markets. Every now and again, though, a revealing chart appears that captures the essence of investor behaviour.
EPFR, a specialist provider of information on fund flows, published data last weekend that showed global equity funds attracted a whopping US$580 billion in inflows in the first half of this year. That was far and away the largest addition since records began.
According to Bank of America, if the pace of the inflows keeps up in the second half of this year, global equity funds will attract more inflows in 2021 than in the last 20 years combined.