Are we in a stockmarket bubble? I wouldn't be so sure

Markets are less expensive than they look given all the money sloshing around, argues Michael Howell of CrossBorder Capital.

Chart of world equity holdings to global liquidity
(Image credit: Chart of world equity holdings to global eliquidity)

All money that is anywhere must, of course, be somewhere. This simple truth explains why the $50-odd trillion (roughly £36trn) of extra liquidity, injected following the Covid-19 lockdowns, has inflated global asset markets, sending share prices to new highs, causing house prices to spike, and putting a rocket under many commodity markets. For context, this sum is equivalent to more than the annual GDPs of the US and Europe combined.

We use the term “global liquidity” to emphasise that money is both international and also embraces wholesale-based credit-providers (the so-called “shadow” banks) that lie beyond the traditional, regulated high-street banks. This pool of fast-moving and footloose funds will again break records in 2021, fuelled by even more central bank quantitative easing (QE) as policy makers accommodate their continuing large fiscal (government spending) programmes (see page 18). In fact, global liquidity looks set to test $180trn, or close to 200% of world GDP, having doubled as a share of GDP within the last two decades.

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Michael Howell is founder and CEO of CrossBorder Capital, which specialises in the understanding and tracking of money flows around the world. For more see crossbordercapital.com