Investment Newsletter – June 2023
Asset price inflation over the past two decades has created about USD 160 trillion in “paper wealth.” Economic growth was sluggish, inequality rose, and every USD 1.00 in investment generated USD 1.90 in debt. The economic, banking, and investment landscape may well look materially different in the next 10 years than it did in the last 20. But the range of possible paths forward is wide, with the best and worst-case scenarios implying sharply different outcomes. Decision makers will need the imagination to prepare for the full range of scenarios while maintaining steadfast determination to achieve the best.
The current market environment is characterized by partial advancement rather than a uniform upward, positive trend in market technical. On the bullish side, major indexes are displaying structural uptrends, indicating overall positive market conditions. The S&P 500 is trading above its 200-day moving average, suggesting sustained price strength. Furthermore, risk-on and FOMO segments of the market have recently started to outperform again, signalling increased investor confidence in higher-risk investments.
However, it is essential to acknowledge the bearish factors as well. There is a significant risk of a major recession, and if this risk materializes, it would lead to substantial declines in stock market prices, probably surpassing the 2022 October lows. Additionally, market breadth, which measures the participation of individual stocks in the market’s performance, is currently poor. This implies that the market’s overall strength is driven by a limited number of stocks, while the majority are not sharing in the upward movement.
For China stock market, even when the gains started to fizzle out, few expected the downturn to be this prolonged and steep. The gauge has lost close to 20% from its 27 January peak, shedding about USD 1.5 trillion at the depth of the rout. The Hang Seng China Enterprises Index has also tumbled into a bear market, while the CSI 300 benchmark for mainland shares has erased all its gains for the year. The bearish calls against Chinese equities are growing, but any further weakness is a chance to buy, as China firms offer pretty good value and earnings in some areas. As of 13 June 2023, China’s central bank surprised most economists and market participants by cutting a short-term policy interest rate, a sign that officials are increasingly concerned about faltering growth and are stepping up stimulus to boost the recovery.
It is essential to consider that Bitcoin is currently in the process of recovering from the bear market experienced in 2022, which was influenced by concerns surrounding regulations and macroeconomic factors such as inflation. Currently, Bitcoin is trading within a consolidation phase, and its rally beyond USD 30,000 has been impeded by recent regulatory scrutiny.
In a June 8 speech at the Piper Sandler Global Exchange & Fintech Conference, United States Securities and Exchange Commission (SEC) Chair Gary Gensler compared the current crypto market to the 1920s US stock market, saying that it is full of “hucksters,” “fraudsters” and “Ponzi schemes.” Just as Congress cleaned up the stock market by enacting securities laws, the current SEC can also clean up the crypto market by applying these laws.
