It would be an understatement to say that the first half of the year was very difficult for investors. Stocks, corporate bonds, and emerging markets suffered huge losses. cryptocurrencies and other assets; and for most of the last six months they have received no protection from government bonds, whose traditional risk-reducing properties also lead to risk-reducing properties. big losses.
In fact, the picture was bleak in all public markets, with the exception of oil and a few other commodities. It’s just a matter of time until valuations in the private equity sector follow suit.
This is an environment where hard to argue for positivesespecially where many analysts have warned that additional losses may occur in both the public and private markets. However, three are already evident.
First of all, it is being restored real and more sustainable value After a period in which asset prices were artificially raised and central banks were distorted by massive and predictable liquidity injections. Some notable individual stocks are already in oversold territory as they technically break down with widespread selling as liquidity dwindles.
Second, after following the stocks down and experiencing historical losses, Government bonds continue to play a risk-reducing role in diversified investment portfolios. This is better news for investors who feel there is nowhere to hide for most of the first half of the year.
One of the reasons the traditional inverse correlation between the price of government bonds (“risk-free assets”) and stock prices (“risky assets”) has returned is because there are three main risk factors at play. developed in order: the third positive aspect. The damage to markets and the economy would have been much worse if they had worked simultaneously.
Market sell-offs began as “interest rate risk” increased. inflation and the Federal Reserve’s slow political response function. This hit both stocks and bonds hard. In recent weeks, this has been coupled with increased “credit risk” as investors fear that a last-ditch effort by the Fed to catch up on inflation realities will plunge the economy into recession. The longer these two risks persist, the greater the threat of triggering the third and most damaging risk factor: stress on the functioning of the market.
For long-term investors, it will pay off over time for markets to emerge from an artificial regime that the Fed has maintained for too long, which has led to bubbling valuations, relative price distortions, resource misappropriation and investors losing money. dominant foundations. promise now a more sustainable destination. Unfortunately, it comes with an uncomfortable and turbulent ride.
Source: Informacion
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