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Risk assets across the globe, despite already high valuations, have recovered impressively from a sell-off triggered by concerns about a North Korean nuclear attack. In doing so, they have again highlighted the extent to which traders and investors -highly confident about the environment they operate in (be it economic, financial or institutional) -have developed endogenous stabilizers.
And while there is a limit to the effectiveness of these stabilizers over time, disrupting them in the short run would require deeper and more sustained adverse shocks, be they internal or external. Over the longer term, however, they cannot obviate the need for a handoff to more sustainable engines of value creation.
Having been sold off last week in the midst of a spike in the VIX and lots of talk about a long-anticipated price correction, risk assets have recovered yet again as many stock indices resume their march toward another set of records.
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