The markets are expressing relief after the Chinese central bank and the Federal reserve indicated their approach. The fact that there could be six interest rate hikes in the US has been put on the backburner for the moment. Clearly, the markets want some relief. A rally of this kind usually makes a lot of investors who missed the correction jump in. It also increases the FOMO factor in people who expected the markets to fall further. But, this rally is in no way a pointer to future market direction. Beyond giving relief to wary burnt investors, this rally won’t offer much.
Investors who want to invest more into equity must now be very selective, bottom-up, and focused. This market may still give opportunities to discerning investors, and those opportunities must be pursued concertedly. But, taking a top-down view in this market is going to be increasingly difficult given the US stance on interest rates and liquidity.
The Chinese stance seems to be running contrary to the American stance. We need to figure out how China can implement what it claims it will do. If China is forced to follow the footsteps of America, that would mean slowing global growth. Once the relief factor sinks in, markets may well start to discount lower growth rates, higher inflation, lesser liquidity, and softer corporate valuation.
Investing in such a scenario would need patience, focus, selectivity, and skill. Investors should prepare much better than in the past to weather the markets in 2022-2023.
