The worst is yet to be over for global equities as major central banks are likely to aggressively tighten their stance in their fight against decades-high inflation
Global equities have lost more than $20 trillion in value this year since January highs, and the sharp decline echoes the hit to global financial markets at the start of 2020 due to concerns over the pandemic-induced recession. .
To put the magnitude of this loss into context, the more than $20 trillion wipeout from global stock markets this year since January highs is more than six times India’s total gross domestic product (GDP). – about $3.2 trillion, Reuters reports.
This loss is almost the size of the total US GDP of about $23 trillion and about one-fifth of the world’s GDP of nearly $100 trillion.
The GDP data referenced is based on the latest data from the World Bank.
India on the weak counter
For India in particular, the outlook remains dim for the outflow of foreign investors as the country struggles with widening budget deficits in the face of a plummeting rupee and rising energy costs. The rupee is only a jump, jump and jump from 80 to the dollar, pointing to a dramatic collapse this year, NDTV Profit quotes a Reuters report.
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From changing hands at 77 to the dollar for the first time in March, days after Russia invaded Ukraine, to 78 and then 79 was fast in terms of the currency markets, with the rate at 80 for a greenback not too far.
The worst is not over yet
But the worst is not yet over for global equities as safe-haven sentiment is again based on expectations of a global recession fueled by aggressive policy-tightening by major central banks in their fight against high inflation for decades.
Economists raised the likelihood of a recession in the United States and Europe, citing aggressive interest rate hikes and the war in Ukraine. This is despite the colossal wipeout of wealth so far and a bruising first half, with most major financial markets firmly entrenched in bear market territory.
But a Reuters report showed that half-month price changes since 1930 figures show that the first two weeks of July have historically offered the best returns of the year for S&P 500 investors.
After three straight quarters of declines in S&P 500 stocks, with the index down a fifth, or 20%, since the start of the year, some investors have said they are ready to buy the dip. The S&P 500 has risen slightly so far this month.
But beyond the first half of this month, the outlook does not bode well for equities as market participants advise caution, anticipating a stormy few months for risky assets amid rising interest rates. interest and concerns about economic growth.
Build defenses, says UBS
UBS and Goldman Sachs have recommended putting in place defenses against a potential economic collapse, which would weaken corporate earnings expectations, according to Reuters.
In a separate report, investors and analysts warned that the upcoming corporate earnings season could lead to another sharp drop in global stock prices, with earnings forecasts looking far too optimistic given growing recession risks.
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The Reuters report showed that valuations had fallen below historical averages, which could tempt bargain hunters. However, recent US corporate earnings warnings have traders worried about a series of downgrades as spiraling energy and other input costs bite and consumers cut back on spending.