This article is authored by MOI Global instructor Alirio Sendrea, head of research at Invexcel Patrimonio, based in Madrid.
The following text has been translated from Spanish and may contain errors.
The period since the onset of the COVID crisis has probably been the most important for us in terms of learning. Right after last summer we began a humble exercise of introspection and analysis, asking ourselves what we should have done better.
The main learning has been a realization of the need to improve our risk management framework — not only to see our wealth grow, but also to protect it. Accordingly, we are including new monitoring tools, formal procedures, and updating our investment checklist in order to embrace the valuable lessons we have learned.
Furthermore, we recognize that as stock pickers we risk to miss the forest for the trees. We may have overlooked new facts and trends, not allocating sufficient time to understand their consequences to the development of businesses, appropriate valuations, and market sentiment. Now it is one of our key goals to be more open-minded.
Hence, besides our traditional bottom-up approach, we want to take a step back to assess what has been going on from a top-down perspective and to assess the “temperature” of the market.
From a macro standpoint, markets have been flooded by unprecedented monetary stimulus in response to the pandemic. While central bank assets have skyrocketed, the world continues to enjoy the cheapest money in 5,000 years, according to Bank of America Global Research.
Meanwhile, many large countries have also deployed massive fiscal stimulus in response to the COVID crisis, with amounts in excess of those witnessed during the 2008 financial crisis (measured as a percentage of GDP). The comparable number is roughly an order of magnitude larger than in 2008 in countries like Germany, Japan, France, the UK, and Brazil; and President Biden will not be a laggard. All this fiscal spending comes on top of the already large monetary stimulus during the Great Financial Crisis, which we were still digesting prior to the COVID crisis.
Market sentiment has been affected by all of the above. By 2019 material distortions existed in certain asset prices. The situation has only gotten more extreme. We outline a few areas of concern.
Members, log in below to access the restricted content.
Not a member?
Thank you for your interest. Please note that MOI Global is closed to new members at this time. If you would like to join the waiting list, complete the following form: