In the current rather unstable times, socially and economically, we may also observe very unstable capital flows on global markets. Investors with huge capital are able to change their minds quite often, and the scale of their actions is breaking records.
It seems that the pandemic caused significant chaos in the approach of investment funds, especially those with a flexible policy of investing, which translates into very fast changes in the allocation of capital. According to the Reuters agency, last week, as soon as investors found out about the effective vaccine, they pumped up the 27 billion dollars to the equity market. This, in turn, seemed to translate into an increase in the prices of previously dumped shares of companies from the banking, travel and energy sectors.
The Bank of America's report states that in the last two weeks alone, global equity inflows amounted to $71.4 billion – the largest amount in history. The capital was to go mainly to the United States and to emerging markets. Meanwhile, the increase in risk appetite led to an outflow of capital from the gold market in the amount of USD 4 billion – this is also the highest amount in history.
According to Jefferies Financial Group, citing EPFR Global, in the week ended November 18, capital seemed to be flowing into low-value shares and the Asian market. The data may also indicate that investors began to look more favourably at value-oriented companies in relation to growth companies. Funds investing in value companies had 4.3 billion capital inflows and funds of growth companies only 493 million USD.
This may be due to the relatively weak performance of the Nasdaq 100 index, which includes technology companies, compared to the Dow Jones index, which includes companies with low valuation ratios. The situation of European stock indices, such as Euro Stoxx 50, DAX, CAC 40 or IBEX, is similar, as most valuations of companies from the real economy sector are also relatively low. These indices have seemed to grow the strongest recently.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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