Why are investors so relaxed at the moment? On Monday last week, Australia’s share market suffered its worst trading day since February. There were fears that Chinese property giant Evergrande would explode ,with debts totalling more than $400 billion, and cause an economic crisis in the world’s second-biggest economy. However, by Friday, the market had recovered most of its losses. It did not seem to matter that Evergrande had not fixed its debt problems, nor that it had missed a coupon payment to bond holders on Thursday. Markets even rallied on Thursday. So what’s going on? The great reflation! Michael Every, Rabobank’s global strategist, wondered the same thing on Friday. In his daily note, he put the Evergrande situation on a long list of other events that you would think would be damaging optimism, but which are not. Apparently, the momentum of the “reflation trade” — that’s been driving global stockmarkets higher ever since 2020’s lockdowns ended — is still too powerful. Property prices are soaring globally. Supply chains are under intense pressure. Labour markets are not in the healthiest condition. The virus is still laying waste to some economies. But stock markets are still bubbling. “As we all know, markets can remain irrational longer than you can stay solvent, and they are… Read full this story
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