Concentration Risks Return

 In ithought, Market Wrap, Shyam Sekhar

The crack in US markets was long coming. Lest we forget, this is America’s longest bull run in history and their economic problems are far from over.

So, what caused this euphoria? Liquidity has been at the core of America’s economic problems and solutions. For a decade, America has been grappling with how to deal with the liquidity tiger and euphoria has become the unintended outcome.

Sadly, the cause of euphoria is ETF investing. This was a way of investing that was supposed to mitigate risks.  Instead, it seems to have done exactly the opposite. ETF investing created a massive concentration of capital in a basket of stocks. As money kept pouring in, a bubble was created. Now, it seems to be unravelling.

But, Indian markets had a reason of our own to correct. We had too much concentration of financials in our indices. This will need to be fixed and our markets will do so in the coming quarters. In the interim, some pain is inevitable.

We are back to learning basic lessons on concentration risks.

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