Markets and Economy Uncommon truths - Nikkei at 40,000?
More than 30 years after the previous peak, we wonder if the Nikkei could set a new all-time high this year. Find out more
16 February 2021
Market Update
Uncommon truths - Central banks in a pickle
3 February 2021
We think tapering is off the agenda for 2021 and believe that central banks may purchase increasing amounts of assets. That may be good for risk assets this year but we worry where this is leading.
A fellow panellist on a recent webinar asked a simple but profound question: would the S&P 500 have produced a 19% total return in 2020 without Covid? The point being that policy makers provided enough support to allow financial markets to look through a very deep recession and gaze far into an untroubled future. Ample liquidity turns all news into good news.
ETFGI reports that global ETF and ETP flows were a record $762.87bn in 2020, a new high and up 34% on the year before (the previous record of $653.3bn was in 2017). That is a fraction of total asset flows (for example, the financial assets of the US non-financial sector increased by $7.9trn during the first three quarters of 2020, including price adjustments) but is impressive in a period of deep global recession.
Equity ETF/ETPs accounted for 48% of those flows (fixed income products accounted for 30%). Given the huge financing requirements of governments, it might have been expected that fixed income flows would dominate. However, for that to have happened, government bond yields would have needed to rise to encourage investors to switch out of other assets. We believe central banks prevented that happening.
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Important information
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All data is as at 28 January 2021 unless otherwise stated.
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Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals, they are subject to change without notice and are not to be construed as investment advice.
