Commentary on financial market developments – April 2021
Highlights:
- US: record IPO volume
- Emerging countries’ problems with the COVID-19 pandemic
Commentary:
Equity and commodity markets outperformed in April. Equity indices outperformed their all-time highs. Probably the most followed index, the S&P 500, has broken the 4,000 point mark and continues to rise further. The oil price is rising again after the April correction and gold has bounced off local highs and continues to rise. Demand for real assets is being driven by expectations of economic growth after the Covid-19 pandemic fades and expectations of accelerating inflation.
The pro-growth news comes mainly from the US, where the economy is recovering rapidly, plus the new president is coming up with more stimulus for the US economy. The total amount of the additional support packages is expected to reach USD 3 trillion, with USD 2 trillion expected to be spent on infrastructure and the rest on healthcare. An increase in the corporate tax rate will be used to fund the giant investments, with the Democrats planning to raise the rate from 21% to 28%. On personal income taxes, the US administration plans to target the rich, but a big fight is still expected among lawmakers over tax changes.
The strong optimism and risk appetite of investors can also be demonstrated by the huge number of new company listings in IPOs. In Q1, the value of new share issuance reached an impressive USD 1.3 trillion, the best quarter since the 1980s. The level of IPOs always correlates strongly with economic growth, which is logical after the downturns associated with the coronavirus. Many companies have had to postpone going public in uncertain times, nor would investors be as willing to invest in new projects.
However, the COVID-19 pandemic remains a certain risk to the global economy, especially in developing countries such as Brazil and India. Moreover, more dangerous mutations of the disease are spreading in these countries. This, combined with the large population and poor state of health care, risks further deterioration and could result in these countries being cut off from the rest of the world. This would again have a negative impact on world economic growth, with, of course, a much more drastic impact on these particular countries.