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Even after a year since COVID-19 began to spread; India and the world continue to suffer under the impact of the pandemic. Several countries including India have once again witnessed a spike in cases over the past few weeks, raising concerns regarding another wave of infection globally. Moreover, it is likely to delay the return to normalcy, thereby affecting consumption growth.
Looking at these scenarios, most of us believe, If the recovery in economic does not take place as expected; the equity market might once again turn highly volatile. Question arises, is it really going to happen? If yes, when? Most importantly, how it may happen!! Lets try to understand how money is moving from one assest class to another.
Example of Investment w.r.t Money Movement
Just Imagine, there are 10 businesses having $1 billion dollar and the current time is somewhere between Apr 2020 to Apr 2021. As a company owner or senior associate you have that much cash and you have to invest it somewhere. What options they have with them? Everyone knows because of uncertainty present due to Covid pandemic, there might be a big hit to their own business growth. High officials or critical stakeholders would never approve new expansion plans. Also, they can not keep their money idle, as we all know money never sleep. So what to do? How to grow money? How to Hedge?
Lets try to understand, how money moved in last one year and try to analyze how it can move in coming months.
Money Movement w.r.t. Gold Prices
Just look at one year chart of Gold Price movement!! Last year at the begining of Pandamic, money quickly moved into GOLD. Later, slowly it started moving into Equity Markets which had already witnessed real dips!!
Money Movement w.r.t. Gold Prices Equity Markets
BSE 1 Year Chart
NASDAQ 1 Year Chart
After a quick shift of money into Gold in the initial phase of Covid Pandamic, the started shifting into equity. This shift was not only a reason behind recovery rallies in equity markets but it brought the market to all time high.
The equity markets are still at an all-time high level and there is a possibility that it may have run ahead of fundamentals, meaning the downside risk in case of any adverse event could be high.
Money Movement w.r.t. Crypto markets
Look at the chart of Crypto market cap, recently the total market cap touched 2.5 trillion dollars when Ethereum touched 4400 USD which was all time high. From there onwards there was a sharp correct not into Ethereum but whole crypto market. Bitcoin which is nearly accepted as “Reserve of Value” all over the world has also corrected nearly 50% from it’s all time high.
That means, during this Pandemic, the move moved quickly into Gold (when all equity markets crashed), later it slowly moved into Equity & Crypto market. Crypto markets has also corrected a lot after a sharp spikes.
Money Movement : Conclusion
Just think over this, are the equity markets fundamentally strong enough to carry the shift of money because of Pandemic for a longer period? Personally, I believe we need to get ready to see decent recoveries in GOLD in very near future.
Moreover, if the Pandamic gets over, lets say by Aug-Sep 2021, Do you think those 1o business houses (which we talked about in the starting of this article), would keep on parking the cash into equity markets without looking at the fundamentals? So what are other options available with them to play with those 10 Billion dollars (which probably have grown to 13-15 Billion by now)?
Will it be Gold? Do you think the returns from Gold will satisfy investors globally? Do you think the equity markets will keep on growing forever? Dont you think equity markets have gone ahead of fundamentals? What else is left? Get ready for the biggest bull run in cryptos by Dec 2021!! (please note this is not a financial advice!!)