Displaying items by tag: bear market

Bonds and equities have stood tall in the face of the many windfalls that have faced financial markets in the last month. However, even the bulls are getting worried and alternatives could provide relief and earn higher yield. Real estate via REITs are in a great position as an asset class and could perform well in the upcoming years with higher interest rates. Art is an overlooked alternative which has had high appreciation, outpacing 10 major classes since Covid according to CITI. Finally private equity has been a go to for many investors, and has seen record inflows post-covid while remaining less correlated with equities.

Finsum: The biggest draw to private equity is that fixed income is more correlated than ever with stocks and so alternatives provide a better hedge.

Private equity set many records for itself in 2021 with gigantic inflows and huge market outperformance, but could that all be slowed in 2022 by an escalating Russia-Ukraine conflict and inflation? Bain & Co said that steeper capital costs driven from these two scenarios will undercut PE as an asset class in 2022. Inflation will hurt growing PE investments and the cheap flow of capital is being reduced by the conflict. There are huge risks that valuations will be much flatter from this point out. This means that the huge inflows and record-setting outperformance might not hold up in 2022.

Finsum: 2021 inflows were already higher than market expectations a natural correction could have been in place, but this could be more severe than just a standard correction.

There have been huge sectoral pains for tech, bio-tech, emerging market, and growth stocks in the last couple of weeks, but JPMorgan says it's time to turn bullish on these beta positions. Analyst Kolanovic said that these equity sectors are about to benefit because many of the geopolitical risk and macro pressures are about to ease. JPMorgan’s analyst believes that there will be little inflation and the US will avoid a recession. Biotech has been beat down since last August when the Nasdaq Biotech Index peaked; it is now at 75% of its previous high.

Finsum: The Fed projections could be bad for tech stocks as higher interest rates decrease the relative value of techs profits.

ESG and other socially conscious investing is all fine and dandy when energy prices are modest, however the sharp spike in energy has many reorganizing their priorities. There was already an upward trajectory pre-Russian invasion due to OPEC+ supply constraints but that has escalated with Biden’s latest sanctions. The war is putting pressure on key commodities that are slowing many green energy initiatives and renewable policy proposals. More Americans than ever are worried about the prices at the pumps and calling for expansion in drilling to expand supply. So no matter the political pressure ESG is facing an uphill climb at the moment.

Finsum: This could put more pressure on long term green energy proposals as this crisis highlights dependence on fossil fuels.

Private equity set many records for itself in 2021 with gigantic inflows and huge market outperformance, but could that all be slowed in 2022 by an escalating Russia-Ukraine conflict and inflation? Bain & Co said that steeper capital costs driven from these two scenarios will undercut PE as an asset class in 2022. Inflation will hurt growing PE investments and the cheap flow of capital is being reduced by the conflict. There are huge risks that valuations will be much flatter from this point out. This means that the huge inflows and record-setting outperformance might not hold up in 2022.

Finsum: 2021 inflows were already higher than market expectations a natural correction could have been in place, but this could be more severe than just a standard correction.