The International Monetary Fund has warned that equity markets could tank should the economic recovery take longer, owing to the COVID-19 shocks. According to the IMF, there is a big disconnect between the financial markets, whereby stocks have continued to edge higher amid a gloomy economic outlook.
The weak economic activity and uncertain outlook could take a toll on investors’ sentiments, something that could trigger a sell-off, similar to the one experienced in March. The sentiments come hot on the heels of the equity market, bouncing off their September lows amid unending uncertainties and concerns.
The S&P500 is already up by more than 8% for the year, with tech-heavy NASDAQ rallying 30%. The stellar performance is in stark contrast to the severe economic outlook triggered by the pandemic. Investors have so far remained bullish about equities on policymakers coming through with policy support. However, should economic recovery continue to stall amid the policy support, there is a likelihood of sharp adjustment in asset prices, something that could trigger a major sell-off.
Amid the IMF concerns, a BlackRock portfolio manager remains bullish about China’s onshore bond market. According to Neeraj Seth, the onshore bond market offers investment opportunities that might be hard to find elsewhere.
BlackRock Chinese Bet
According to Seth, China’s bond market offers many options for investors looking to diversify their investment portfolios. The sentiments come amid growing concerns about the health of the Chinese property developer China Evergrande Group, which appears to be struggling with liquidity issues.
The investment giant has remained bullish about China’s domestic bond market in the wake of economic data showing significant improvement in the pandemic’s aftermath. Monetary policies have so far helped accelerate economic recovery even as other countries continue to stumble.
The BlackRock sentiments come at a time when foreign investors remain underinvested in China’s onshore bonds. Currently, foreign investors account for 2% of the $16 trillion markets. However, foreign participation looks set to increase as more Chinese bonds get listed in major global indexes.
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