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Dear markets, WTH is going on? 🙄

The Sensex & Nifty-50 hit their all-time highs recently in 2020, and are still trading near those
Dear markets, WTH is going on? 🙄
By Making smalltalk • Issue #33 • View online
The Sensex & Nifty-50 hit their all-time highs recently in 2020, and are still trading near those levels. Leave aside the fact that unemployment is at a 45-year high, the GDP growth rate has hit multi-year lows, and credit growth is expected to touch a 58-year low in FY20.
Also leave aside there are large unresolved issues from corporate India that have the potential to cause massive ripple effects - like the imminent & unplanned closure of Vodafone-Idea.
Or that despite the magnitude and impact of frauds like IL&FS and DHFL, there’s still no clear view on how to tackle these issues and no timeline on the long overdue FRDI bill.
Yet, the broader markets don’t seem to care. And Indian investors are not alone in this, it seems. The European economy had its worst quarter since 2013, growing at a measly rate of 0.1% for the quarter ending December 2019 - yet it’s benchmark indices touched all-time highs last week.
The US stock markets also hit record highs earlier this February. Markets have shrugged off the concerns raised by slowing economic data published in late 2019, as well as the still unresolved trade issues with China.
And then there’s China, and the most talked about (and threatening) topic of 2020 - coronavirus. Almost every health expert now agrees that it’s likely stay for some time, and cures/vaccines seem to be 3-6 months away in the best case.
Global passengers & an initial carelessness from Chinese authorities have enabled this virus to spread to key corners of the world - including the US, the UK, Japan, Singapore, Hong Kong, and even India.
In the two months since the initial outbreak, the Chinese Govt. has taken many steps to control this outbreak - some even as drastic as quarantining entire cities.
In its unique democratic style, the Chinese authorities have “advised” people to stay indoors, implementing Mao-style social controls in an effort to curb the spreading coronavirus.
Most investors - rather most people - know that China is the world’s manufacturing hub. The largest companies of the world depend on China - from production of iPhones (and smartphones in general) to supplying Active Pharmaceutical Ingredients (API) for the global pharma industry.
And it’s not just production - China is also one of the largest consumers in the world of various products, services, and raw materials. Metals & construction related raw inputs are a prime example.
It’s only logical that a restrained Chinese economy will not only result in reduced/disrupted production for the world’s largest companies, but also muted global consumption.
Even before the virus hit China, their economy grew at its slowest pace since the early 1990s for the quarter ending in Dec 2019. Now with this, its virtually guaranteed to slow down even further.
The global markets have known this for a while, of course, but for some reason just don’t seem to care. Even though all of this will have a very real impact on all of us very soon.
I honestly don’t know what to make of the current optimism & cheer reflected in the all-time-highs of the various stock markets globally. Sure, stock markets and economy aren’t as correlated as they used to be for a host of reasons.
But it’s one thing to be not as correlated - a whole another to have global stock markets at all-time-highs & all relevant economic indicators at multi-year-lows. The current situation is neither rooted in the economic reality, nor remotely cautious of the impending threat posed by coronavirus & its impact.
Yet, the markets are like this. I don’t really know WTH is going on. Do you? If so, do tweet your opinions to me at https://twitter.com/vikasbardia.
Happy investing!
- Vikas Bardia, CFA

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