Global money supply grew by $ 15 trillion last year, the fastest pace in history. The record of 2017 at the level of 8 trillion dollars was significantly exceeded. Behind this last year's growth in the volume of money in the global financial system, let us look for nothing more than the unprecedented quantitative easing, alias money printing, of key central banks.
It is no wonder, then, that although the world economy contracted by about 4% last year, which was, by the way, the deepest economic downturn since World War II and many times stronger than the 1% downturn in the crisis of 2009, stock markets according to the broadest global stock index MSCI All Country World grew by a very significant 14%.
In recent days, the European Central Bank and the US Fed have met. Both key central banks have clearly indicated that they will maintain the ultra-loose monetary policy for a very long time to come. The money will thus continue to be "printed" in unprecedented volumes, which will significantly support the markets for risky assets, led by equities. Although global stock valuations are the highest since the technology bubble in 2000, it is quite possible that stocks will continue to grow.
However, we currently perceive the return-risk profile of equities quite asymmetrically. We see a high probability that stocks will continue to rise, but only very slightly due to record valuations. On the other hand, we see a significant probability, albeit significantly lower than 50%, that the stock markets could undergo a significant correction during this year. After all, the latest global macroeconomic data has been quite weak, as representatives of the International Monetary Fund and the World Bank have also commented on in recent days. As for the dynamics of the world economy this year, in our opinion, it will tend to surprise rather on the downside.
Michal Stupavský
Investment Strategist at Conseq Investment Management, a.s.