Stocks in New Zealand and overseas are experiencing record highs despite being in the middle of a global pandemic, explains Mike Taylor, Pie Funds CEO and Founder.
The global bull market has been driven by extraordinary low interest rates and government stimulus. This abundance of cheap money has restored confidence, despite Covid-19 wreaking havoc on our daily lives, and found its way into markets. Lockdowns have also not prevented us from consuming goods and services. In fact for many e-commerce companies, lockdowns have proved a windfall as consumers buy up large on items for the home, like new work-from-home gear and home exercise set-ups.
Technology a big driver
The key driver of the bull market, particularly in a post-Covid world, is the pull-forward of technology trends. Covid has forced consumers to adapt to a digital world. That’s been positive for everything from technology chip makers (we need chips to power our smart devices) to software companies, to data centres, to online grocery shopping. There have also been some unusual winners like cycling companies, like ones that make indoor spin bikes and outdoor e-bikes.
The future of low interest rates
I think interest rates have bottomed and, if the recovery takes hold as I anticipate it will, I can see increases to the OCR in 2022. Higher interest rates are initially a positive sign as it means the economy is recovering. However, this might be a handbrake for long duration growth, ie tech companies on lofty valuations. Higher rates usually benefit short duration growth such as cyclicals, eg travel, banks leisure. But it remains to be seen if the global economy can cope with higher rates.
Active management brings choice
Active management can help when it comes to a bull market because during the likes of Covid, we can invest in sectors that are currently benefiting. For example in 2020, we actively rotated the portfolios toward Covid beneficiaries, tech and e-commerce. Then more recently we have been increasing exposure to recovery plays, such as retail and banks. Active management gives us choice, in that we can buy and sell stocks depending on market conditions and have flexibility.
How long will the run continue?
So how long will the bull market continue here and overseas? How long is a piece of string. It’s an impossible question to answer. If I knew that, then I’d be writing this from my superyacht cruising the Bay of Islands! An educated guess would say this has further to run, but I do expect the effect of low rates, stimulus and pent-up demand to blow a massive bubble which, ultimately, will burst. I just don’t know when that will be.
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