News about the Chinese coronavirus three weeks ago broke into the headlines of financial media, making much buzz in world markets. However, in the markets, there is always a way to benefit in the current environment.
Late last month, it was an almost a nightmare, capable of completely disrupting the established economic processes. Hence, the markets, especially Asian, were in near-freefall. The peak of fear was when Chinese markets opened after a long New Year holidays, losing about 8% on the opening.
But Asian markets have been growing almost every day since then, regaining virtually all the decline of early February. Why? It’s all about the authorities’ reaction to the situation.
With Trump as US president, markets have moved to the centre of politics. The stock market became both a judge and a measure of the success of any political courses.
It seems that with a glance at the markets, the Chinese started to act like the US, unprecedentedly injecting liquidity into the financial system and put some restriction for stocks sales. This has become a turning point for the markets. It became clear that no matter what happens, politicians or central banks will be able to solve the problem with money.
Such an approach implies an increased demand for risk assets. It is believed that the so-called “growth” companies are growing the strongest in such conditions. Nowadays, as in the 1990s, these are companies associated with IT and high-tech. Over the five years from 1995 to 2000, the Nasdaq index grew ten folds. Between five years and 2020, it “only” doubled. So, with current political course in the foreseeable future, such names as Apple, Google, Amazon, Tesla may remain attractive to investors who expect growth in customer base and stocks prices first, and dividends and low price volatility to a much lesser extent.
“The Cherry on top ” is gold. It’s dangerous to bet on it if the collapse of financial markets is expected. It is usually turning to grows after it becomes clear that the global financial system is in safe, and the policies of governments and central banks is enough to put inflation and economy to a growth trajectory.
The FxPro Analyst Team
This Review is presented by FxPro.
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