COVID-19 has pushed markets into uncharted waters, finds CFA

Global survey of membership shows pandemic’s lingering implications on inflation, taxes, and responsible investing

COVID-19 has pushed markets into uncharted waters, finds CFA

More than a year after it shook the world, the dust kicked up by the COVID-19 pandemic has yet to settle. And as a report by the CFA Institute shows, at least one thing is clear: global capital markets are in uncharted territory.

In a survey of its global membership, the institute found a 44% plurality of respondents see a K-shaped recovery playing out in the economy of their region. One third (32%) were optimistic, believing their economy will be back to its pre-pandemic pace within three years.

When asked how they thought economic relief programs deployed in their respective markets would be paid for, two thirds (65%) of the CFA Institute’s global membership held the view that general taxation levels will rise. Just over half (51%) also thought that governments and monetary authorities will accept higher inflation levels and therefore finance their public deficits through programs of debt monetisation, and 43% thought that growth from the economic recovery would enable gradual repayment of debt over time.

On the subject of price increases, two thirds (65%) of the belief that accommodative monetary policy coupled with supply-side constraints will cause inflationary pressure over the next one to three years. A deeper dive reveals a split among those respondents, with 31% thinking central banks will step in with more restrictive policies and 34% believing central banks won’t do so.

The survey findings reflected regional differences in sentiment. Generally, European respondents were generally unconcerned about inflationary fallout, believing either that there’s no inflationary pressure whatsoever (28%) or that inflation will materialize, but it won’t be enough to provoke a hawkish response from Europe’s central bank (37%).

U.S. respondents, meanwhile, were more likely to believe that inflationary pressure will force central banks’ hand (34%), and less than a fifth (17%) thought there is no inflationary pressure at all.

Touching on ESG, the survey found 40% of participants agreeing that there’s structural strength behind the trend toward sustainable financial products. This cohort also believed that ESG-compliant products will dominate the financial landscape within the next 10 years.

Enthusiasm for ESG was strongest among European respondents, 58% of whom thought that sustainable financial products are here to stay. That’s in contrast to the weak ESG sentiment among responding members in China (23%), Pakistan (29%), the Middle East (30%), and the U.S. (33%).

A third of all respondents (34%) shared the view that a small number of Big Tech companies are consolidating dominance in the markets as a result of the crisis.

Cryptocurrencies and crypto assets were also a concern for 27% of respondents, who felt that the monetary stimulus unleashed by authorities to tackle the 2020 crisis had undermined faith in fiat currencies.

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