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Thursday, September 29, 2022

Experienced Investors Are Buying Massive Shares Right Now – FAEI.cz

Even though the country is facing the highest inflation in 40 years this year, he increased his equity investments at a massive pace in July. This results from an analysis of the behavior of so-called “smart money”, i.e. investment professionals who manage banks, big money, state funds or the wealth of wealthy families and businessmen.

Several indicators indicate that a fundamental turning point occurred in world markets during June – and “smart money” has already reacted to this. Since mid-June, the Standard & Poor’s 500 index, the leading indicator of US stock exchanges, has gained about seventeen percent. Moreover, it grows relatively continuously and one can say fast.

There was a significant fall in copper prices in June. The price development of this metal often foreshadows events in the bond and stock markets. really. From the first week of June to mid-July, the price of copper fell by about 30 per cent.

A few days after its price began to decline, the price of oil began to decline, falling by about twenty percent by mid-July and another percent since then. And then it all went away at once. Since mid-June, the price of bitcoin has stabilized, rising slightly since then.

Market interest rates have also been falling since mid-June. in the world and in the Czech Republic. For example, yields on the Czech government’s ten-year bonds are declining, and domestically, ten-year swaps are also falling, leading indicators that banks use when setting mortgage interest rates. Therefore the increase in the price of mortgages in the Czech Republic has gradually stopped since mid-June, and they can be expected to become cheaper within a few months.

But what happened in June that became so important that a change occurred? World markets have ended up “pricing” into the effects of global inflation and the war in Ukraine. He fully realized that the best cure for inflation is inflation. The decline in the purchasing power of households and companies due to inflation has already “priced in” stocks. That’s why the stock fell a long time ago during the spring.

Experienced Investors Are Buying Massive Shares Right Now - Faei.cz

The decline in purchasing power and the associated macroeconomic slowdown means that the period of monetary policy tightening and interest rate hikes will also gradually come to an end. After all, in the Czech Republic, for example, this has already ended with great potential, although largely due to changes in the bank board.

The end of the tightening phase of monetary policy is good news for stocks. If interest rates don’t continue to rise, it means they won’t eat into the companies’ future profits as much. And stock investing is about the future, just as the monetary policy of central banks is about the future.

Moreover, the June signals from the markets in July were confirmed. In the United States and the Czech Republic, inflation fell below expectations. After quite a long time. In short, inflation is “nothing else to attract”. This has already caused such a fall in purchasing power that demand is being destroyed and the fundamental question is whether there will be a soft or hard landing in the economy.

The aforementioned “smart money” in the US actually bets big on a soft landing in July. So interest rate growth will stop sooner or later, but the economy will not fall into a deep recession. Given the circumstances, which were quite oppressive in the spring, this is actually the best possible resolution.

Experienced Investors Are Buying Massive Shares Right Now - Faei.cz

The aforementioned destruction of demand creates pressure for a reduction in inflation expectations, which in turn puts pressure on a reduction in market interest rates, which ultimately coincides with the actions of the central bank. Therefore, we can expect the increase in the price of mortgages in the Czech Republic to stop, and therefore the base rate of the Czech National Bank (ÄŚNB) to decrease from next year.

Thus the central bank will try to support an economy going through a recession, in which, however, due to this slowdown, inflationary pressures are weakening. There is therefore no need to raise interest rates further, and finally there will be no need to ease inflationary pressures even with the intervention of a strong corua, within the framework of which the CNB sold about 600 billion crowns of foreign currency. last three months.

From a macroeconomic and social point of view, the next months and the following years will be difficult in the Czech Republic, especially because of the high cost of energy. But while stocks and financial markets in general are so much about the future, they are already looking beyond the horizon for the next months and even next year. He doesn’t see any disaster there.

The author is the Chief Economist of Trinity Bank and a member of the Government’s National Economic Council (NERV).
(editorially modified)

Experienced Investors Are Buying Massive Shares Right Now - Faei.cz

World Nation News Desk
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