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Despite the global pandemic and its catastrophic effects on economies worldwide, there seems to be no waning of appetite for stocks and risk-based assets globally. The major markets have delivered mainly positive returns in the year to date, in particular, the Japanese NIKKEI 225 Index has outshone its developed market counterparts as COVID-19 has been relatively well contained.
In other financial sectors, we have seen cryptocurrencies go through the roof with some citing it as the 'new gold', and institutions taking up big positions in the asset class. We have also seen significant investment inflows into ESG (environmental, social, governance) either via the stocks of companies who adopt the philosophy or directly into ESG-related funds.
US Tech stocks seem very frothy in their valuations, none more so than Tesla but investors keep buying into the company’s direction. Technology is here to stay and will forever evolve so for the long-term investor, this sector remains an attractive one despite some incredibly high valuations.
But surely we are soon due a big market correction?
Not necessarily. Interest rates are at historic lows and are likely to remain that way for the foreseeable future, despite the potential looming threat of inflation. Fiscal stimulus throughout the pandemic has been on unprecedented scales, with the US recently announcing another massive bout of support and investment in infrastructure. Corporate earnings are bouncing back strongly with greater optimism on the back of the vaccine that the pandemic is over, and individuals have greatly boosted their personal savings through lack of spending opportunities.
Reasons to be cheerful? Perhaps cautious optimism is more the phrase at this time. There are still headwinds out there and markets inevitably recalibrate from time to time but the long-term investor should probably not be too concerned.