The first half of the year has been dominated by the themes of inflation and reflation of the economy in a post-pandemic world. We are expecting an equally challenging 6 months for the remainder of the year, as we are at an important crossroad determining the fate of economic activity, central bank policy and with it the value of investments overall.
As we enter the second half of 2021, a resurgence of the Delta variant of COVID which is starting to have its impact in Europe (UK predominantly) and the US, fuels concern about a severe slowdown in growth. From where we stand today, everything won’t be normal again by September, which was the mantra of the first 3 months of the year. This keeps interest rates low, despite a continued high print of headline inflation numbers in the 5% area. The Fed is still calling this a ‘transitory effect’, and it becomes harder to argue against it. Inflation is a result of economic growth, not a driver. 10-year US government bonds yields seem to have topped around 1.75% in March and have been coming down since then as the market started trusting the Fed's transitory inflation narrative. We have also started seeing the flattening of the yield curve as the expectations of Fed tapering seeps in.
Our Investment Committee maintains a constructive view for the months ahead. Central Bank and Government Stimulus are important drivers of future expectations and prices of stocks and bonds alike. However, after a strong first half of the year and with doubts arising related to new virus variants and ongoing political tension between the US and China, there is an increased likelihood that investors might take some profit at the midpoint of the year, leading to a small correction. The Q2 Earnings season which started mid-July will be giving us some key indications for the next direction in equity markets. Our preferred course of investment remains the route of systematic investment plans (SIP), committing smaller amounts over a period of time to build up your nest egg.
For the second half of the year, we have further enhancements planned. Our team at Kristal has grown strongly in the first half of the year. This will allow us to achieve our most important objective: To serve you, our client, better, more efficiently and to help you to achieve your investment goals.
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July 15, 2021
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