Anatole Kaletsky: I was wrong to be bearish on stocks

There are “three clear reasons” for equity markets to keep climbing, says Anatole Kaletsky, chief economist at Gavekal.

“I was wrong to turn bearish,” says Anatole Kaletsky, the self-proclaimed “perma-bull” commentator who became unusually downbeat when the Covid-19 crisis hit. In March, as the sell-off in most assets reached the bottom, he argued that it was “too early to buy equities”. And just a couple of months ago, he was dismissing the rapid rally as “market madness” driven by a flood of bored gamblers who had turned to stocks when they couldn’t bet on sports during lockdown. But more recently his optimism has been restored: there are now “three clear reasons” why “equity markets are more likely to continue moving higher than to retest their lows, even if the world is hit by another wave of Covid”.

One is that “the scale and speed of fiscal stimulus and monetary expansion … turned out to be far larger than I ever imagined politically possible”. This has averted “economic disaster”.  Second, while these policies are not guaranteed to return the world economy to normality within two years (although the odds they do are fairly good), for now investors seem to have “100% conviction” that they will. That belief can’t really be proved wrong for at least a year or so. But most importantly, there’s good reason to hope that this crisis will produce a “structurally stronger world economy” in the coming decade, rather than the weak growth and high unemployment that many fear. Governments have now “enthusiastically embraced” Keynesian economic policies; if this persists, it will drive “a boom in long-term investment”.

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