Is the global investment boom turning to bust?

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Is the Global Investment Boom Turning to Bust?

It looks like 2020 will go down in history as a year in which there were major recessions, pandemics, politics, and market volatility. The economic impact of the pandemic has been severe, causing a huge drop in investments. This has not only put pressure on global investors, but it has also caused some to question the sustainability of the global investment boom that was seen in 2019.

What Does the Data Say?

Data collected by the McKinsey Global Institute in 2019 showed that global investment spending was at historically high levels. Global fixed capital formation was at its highest since 2008, reaching more than $30 trillion in 2019. This was led mainly by increasing investments in the advanced democracies as well as in emerging economies.

Despite this, recent data has shown that there has been a decrease in global investments since the start of 2020. According to the World Bank, global investment was expected to have decreased by 11.9 percent between 2020 and 2021 due to the pandemic. It is also expected that fixed capital formation will decrease by 6.6 percent in the same period. This puts the global economy into a vulnerable position and questions the sustainability of the global investment boom.

The Role of Low Interest Rates

One of the key factors driving the global investment boom was low interest rates. For years, central banks in the advanced democracies had been trimming benchmark borrowing costs to historically low levels in order to stimulate the global economy and encourage investments. This strategy proved effective, as investments doubled between 2009 and 2019. However, the situation has changed drastically since the start of 2020, due to the pandemic.

The US Federal Reserve has taken dramatic steps in order to cushion the devastating impacts of the pandemic. It has slashed interest rates to near-zero levels and launched a $2.3 trillion stimulus package. The European Central Bank (ECB) has also taken steps to make borrowing cheaper, such as a pandemic emergency purchase program. The ECB is also considering increasing its bond purchases to enhance economic recovery.

What Does this Mean for Global Investors?

The sharp decreases in investments, combined with the fact that major central banks have drastically reduced interest rates, has put global investors in a precarious situation. Low interest rates make it harder for investors to get a return on their investments, while a decrease in investments could indicate that a recession is on the way. In this climate, investors have to be more cautious in their investments and develop strategies to manage potential risks.

How to Protect Your Investments

Given the uncertainties in the global market, investors should take a more defensive stance with their investments. Here are some tips on how to protect your investments during these uncertain times:

  1. Diversify: Diversifying your assets is one of the best ways to protect your investments. Don’t put all your eggs in one basket — spread your investments across different asset classes to reduce the risk of losing all your money in one particular type of investment or market.

  2. Invest in safe securities: Secure investments, such as government bonds and other fixed-income securities, tend to be safer investments in times of volatility. These types of securities come with less risk than stock investments, as they are backed by governments, and they also tend to offer regular returns.

  3. Have an exit strategy: Don’t get in over your head. Always have an exit strategy, where you can easily divest from or invest in securities or assets. This will help you minimize losses and maximize gains.

  4. Invest in long-term strategies: Many investors, particularly those investing in stocks, tend to think short-term. However, in times of market volatility, the best bet is to take a long-term approach. This means investing in assets that are designed to provide returns over the long-term, such as growth stocks and other index funds.

The global investment boom of 2019 has been curtailed due to the impacts of the pandemic, resulting in decreased investments and low interest rates. This has made the market more volatile and risky for investors, which has led to many investors questioning the sustainability of the investment boom. However, by taking a defensive stance and diversifying their investments, investors can still protect their investments and take advantage of low interest rates to secure returns.

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