MARKET CORRECTION OR OPPORTUNITY TO REINVESTMENTS

 

You don’t need to crystal gaze the market outlook you just need to connect the fundamentals. The global corporate debt to ratio and interest hike will be a massive trigger for a rebalancing of portfolios.  Rebalancing and Reinvestments are the two keys to successful asset allocation.  Today and in the last 18 months, you did not have any option of reinvestments other than equities. Despite your equity portfolio soaring to new highs you could not do re-balancing of the portfolio. In the coming 9 months, we will not be having any such risks. We will have currency, gold and debt to offer opportunities for investments.  Dollar to Rupee and yen war will give significant opportunity to invest and trade in coming next 9 months starting soon. We throw light on the alternative asset class performance expectation in the coming days where we may not be surprised to see Rupee around 78.

 The S&P 500 and tech-heavy Nasdaq are both up approximately 30% compared to the same period a year ago, and the Dow is up more than 20%. This rally is fuelled by massive inflows of easy money, cut down and restructuring of necessary cost and now with revenge buying and a huge pipeline of demand makes profits soar. The forward PE ratio is going to come to a stop level now since the inflation and interest rate followed with winding up of easy money is going to reverse and change many forward PE ratios.

 Further, as per S&P Global Ratings, corporate debt to the Global GDP is going to swell to 260% by the end of 2021. Global debt rose to a record high of nearly $300 trillion in the second quarter of this year, data from the Institute of International Finance (IIF) shows. Total debt, including government, household, corporate and bank debt, soared $4.8 trillion to $296 trillion at the end of June, $36 trillion above its pre-pandemic levels.

 Well, we have a topping of China type crisis also. This year’s rise in debt levels took the greatest toll on emerging markets, with total debt rising $3.5 trillion in the second quarter to reach nearly $92 trillion. This debt reduction will not happen so easily and with interest rates bring brought up and inflation leads slowdown in consumption are going to pull the lever for the global markets to slow down.

 Food price inflation will now spill over to other segments of society. Food prices increased 40 per cent over the previous 15 months according to the UN’s Food and Agriculture Organization, the biggest increase since the Arab Spring in 2011. Now with the energy crisis and rising prices, the same will soar to new highs.

 Further vaccination drive in different countries will direct the supply chain and also we are still far away to identify how much business and trade have been wiped out due to covid 19 in different countries.  Countries having sufficient leeway to fund slowdown will be better saved and those who do not have are going to create a divergence in currency. Divergence in inflation between countries and currency imbalances and war will begin soon. Equity inflows and outflows will now be influenced through currency direction.

 Apart from these, we will find the U.S to be focusing on service and construction jobs. The unemployment of the U.S economy speaks a different picture when we analyse it in-depth. It’s being found that a major problem for many Americans is the staggering amount of people who have been unemployed for over 27 weeks or longer. Nearly 3 million people have been without a job for over six months. This represents 34.5% of the total unemployed in September. Child care is another issue for the unemployment numbers to rise. This is the prime reason why the infrastructure bill of Biden is so important and it will help to create jobs.

  Global bond markets and particularly the countries that have swelled up their corporate debt levels to unprecedented levels will be giving shocks to everyone. Currency volatility will rule and markets will rebalance the portfolios. The trigger point of bond investments and rebalancing will be the soaring corporate debt to GDP ratio is going to be a buzzer.

 At the same time, Equity will remain a core part of asset allocation and individual country-specific policies and economic regulations will provoke and get investments for the respective GDP. But we should be prepared to witness GDP cut down coming up in coming months across as inflation goes beyond control and bubbles burst like china erupts.  The opportunity of investments in equities and other asset classes is going to be wide open for investors.  You don’t need to chase Bitcoin anymore when other asset classes are going to be attractive. 

India stands to be in a strong position based on cost structure, China +1, demographic advantage and stable government policies. It may not be one-way traffic but it will be a long drive with consolidation.