The View | Why stock market investing today is like flying in the 1950s
- Akin to travelling by plane mid-century, investors today are experiencing long periods of intense boredom separated by short periods of sheer terror. And the ride is likely to persist
Most stock markets indices don’t want to go down. For a Hong Kong dollar investor, Mumbai is up 111 per cent since the Covid-19 low, the S&P 500 is up 103 per cent, Europe 89 per cent, and Tokyo 73 per cent.
But, as they say in football, it has been a game of two halves. The Shanghai and Hong Kong stock markets have seen a relatively derisory rise of 45 and 22 per cent respectively, making them among the few markets not to exceed their pre-Covid-19 highs.
The bold moves elsewhere are driven by a reported US$17 trillion of liquidity in spender’s pockets, and the continuing promise of ultra-low interest rates. It is unsurprising that wealth management clients are borrowing more than ever – a recipe for inflating prices.
It means that investing today is like flying in an plane in the 1950s – long periods of intense boredom separated by short periods of sheer terror. The chart below shows the Vix index, sometimes described as the “fear index” as it measures the market’s expectations of the relative strength of near-term price changes of the S&P 500 index.
The chart shows the Vix from the beginning of 2020; the volatility surge in February of last year, as the market collapsed on the initial Covid-19 fears, is obvious.
Since then, the index has broadly declined to a low of 17, which is even below its 30-year average of 19.5. More important is to notice the periodic spikes when volatility leaps during periods of market distress.
