Global Markets Update
Q3 has exposed signs of huge volatility within equity markets.
Central banks such as the FED and BoE assessed the reduction of quantitative easing due to the amount of fiscal stimulus pumped into global economies since the pandemic began. In addition, China rattled global markets in August with plans to ban U.S. IPOs for data-heavy tech firms which badly dented investor sentiment. They also introduced a new law that reduces the amount of time that children and teens are allowed to spend playing video games to just three hours per week. The new rules are part of a broader crackdown by Beijing against domestic tech titans like Tencent and Alibaba, to end their unfettered growth. Consequently, we have seen negative net flows into global equity funds (-$28.6BN). This was the biggest outflow from US stocks since Feb 2018.
On the other hand, commodities are beginning to become more attractive to investors. Oil has risen more than 80% over the past year as worldwide demand recovers from the disruption caused by the pandemic. On the supply side, the Organization of Petroleum Exporting Countries (OPEC) and its allies including Russia (OPEC+) have been easing output slowly.
Heading into Q4, all eyes are tracking negotiations in Washington over Biden’s $3.5TN spending proposal, in a drive to expand education, healthcare, tackle the climate crisis, and make further investments in infrastructure. However, companies are concerned that higher taxes, which might be used to finance the package, will negatively affect cash flows and their ability to return cash to shareholders.
Is the worst yet to come, or are we simply questioning an extremely resilient market?