The impact of COVID: A flight to safety
The events of the past 18 months have not sparked new trends, they have simply acted as a catalyst for existing ones.
In any crisis, people have a tendency to take money out of equities and look for less volatile alternatives. In the midst of a pandemic, where volatility became the new norm, investors realised they needed to have a range of assets that could deliver against unprecedented market movements.
This shift was reflected in research conducted by the Australian Securities Exchange (ASX) in May 2020. Asking investors about their behaviour during the pandemic downturn, the ASX found:
In the decade following the Global Financial Crisis, we experienced ultra-low interest rates, increased Central Bank intervention, and higher capital requirements for banks that together, created far-reaching and diverse flow-on effects.
One key effect was the increase in investor risk appetites. Since 2020, asset prices have soared across everything from residential homes to tech stocks. However, interest rates for cash and term deposits aren’t keeping up with inflation so income-focused investors moved up the risk curve to capture returns in the face of the low rates available from cash and bonds.
However, during 2020, the ASX200 experienced both a precipitous 37% drop and a dramatic recovery by year’s end and in the meanwhile, investors faced significant dividend cuts thanks to lower earnings and regulatory intervention.
Not surprising then that investors are continuing to look beyond traditional barbell approaches of cash/bonds for safety and equities for risk in order to meet their lifestyle costs.
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