Global stock indexes are undergoing major change at the moment. This is because of the increasing interest of investors in investing in stocks in emerging markets. There are many reasons for this trend. Some of them are mentioned below.
Gold is a weak hedge for US stocks
A strong dollar can act as a headwind holding gold back. However, it can also encourage domestic consumption and help export U.S. goods.
As the Federal Reserve continues to fight inflation, it has made interest rates more expensive. This leads investors to seek out alternative locations to hide from high prices.
Gold has long been perceived as a safe haven. However, the best way to reduce risk is diversification.
A good place to start is the stock market. The S&P500 index is widely followed by institutional investors. Several components of the index are down 30%-53% from their highs.
It is well documented that gold is a weak hedge for US stocks. But what is the optimal level of gold to use in your portfolio?
Studies have looked at the relationship between gold, stock and bond prices. These studies have looked at various time scales, and the results have varied. One of the main reasons for this is the fact that these studies were motivated by attempting to find the best return-to-risk ratio for their stock portfolios.
Similarly, studies have looked at the relationship between gold and exchange rates. Some of these have found minimal correlation between the two.
Gold also acts as a good hedge against currency movement. This can be especially useful for long-term currency investors who may want to avoid risky currencies. Alternatively, it can be used to hedge against other asset moves, such as a stock price drop.
COVID-19 pandemic on global stock indexes
The COVID-19 pandemic was one of the deadliest disease outbreaks in history. It shattered the lives of millions of people. Not only did it kill more than 2 million people, it also caused billions of dollars in losses to the global economy.
It originated in Wuhan, China, and spread rapidly to all corners of the world. The World Health Organization declared the pandemic a global emergency in March 2020. In the midst of this crisis, the stock market of Russia was not impacted. However, stock markets of many countries did.
A study on the short-term impact of COVID-19 on the global stock indexes found that the severity of the effect varied across indices. Overall, the effect was negative for most indices.
Several factors were identified as amplifying asset price moves. In addition to the increase in COVID-19 cases, news of widespread defaults led to a surge in borrowing costs. Many economies suffered significant contractions in financial markets. Moreover, fears of the virus’ spread due to insufficient vaccines and treatment in many nations remained.
Although the overall effect of COVID-19 on the global economy was not positive, it did provide researchers with a rare opportunity to study human behavior in the face of a crisis. Similarly, it highlighted the importance of disaster risks in financial markets.
Probability of a V-shaped recovery by the global economy
The question is, how long will it last? A recent study by the World Bank estimated that a global economy with a strong recovery could sustain growth rates of 3% a year. It will take a robust multilateral cooperation on the part of the powers that be to maintain this level of growth.
In the midst of this frenzy, the Federal Reserve has used all of its ammunition to keep the economy on track. This includes a series of stimulus packages signed by President Obama and his predecessors, as well as a raft of fiscal stimulus initiatives on the domestic front. All this and the usual suspects means that the global economy will be doing some serious catching up in the near future. Despite the grim outlook, the global economy is expected to perform a bit better in the second half of 2020 than it did in the first.
While we’re at it, let’s look at a couple of the more plausible and less optimistic scenarios. First, we’ll take a look at the macroeconomics side of things. We’ll cover the economic libraies of China and the UK. And we’ll finish with the financial sector. As for the US, there is some trepidation over the prospects of an imminent economic resurgence. There is a lot of talk about a recessionary resurgence in the Eurozone, and there is a lot of speculation as to what will happen next.