Capital Markets Enter Uncharted Waters: Covid-19 One Year Later – a Global CFA Institute Survey

25 June 2021

Monetary stimulus, inflation, the equities run, tax hikes, and socioeconomic consequences: In the aftermath of the Covid-19 crisis, the role of finance in society could be materially affected

CFA Institute, the global association of investment professionals, today releases Covid-19, One Year Later, Capital Markets Entering Uncharted Waters, a report analyzing the results of a new global member survey from CFA Institute to identify and highlight the critical impacts of the Covid-19 pandemic on financial markets.

The report reflects views from CFA Institute members and charterholders on the structural consequences of the crisis on the economy. It also addresses the potential socioeconomic distortions that may have been caused by the monetary stimulus measures enacted by central banks intended to address the Covid-19 economic crisis.

Key findings:

• A large majority (65 percent) of respondents believe that an accommodative monetary policy, combined with supply-side constraints, will cause inflationary pressure over the next one to three years. Those respondents are closely split on whether inflation will cause central banks to restrict monetary policy as a result (31 percent think central banks will switch to a restrictive policy, 34 percent think not).
• 58 percent of respondents agree that the role of government will broaden as a result of the crisis, and the share of government spending in GDP will structurally and materially rise, as will taxes. In addition, 40 percent agree that the Build Back Better movement and the trend toward sustainable investment products is strong and here to stay.
• 44 percent of respondents believe the stimulus measures have created a goldmine for the investor class, widening the wealth gap in society.
• A plurality of 44 percent of respondents globally see the economy of their region recovering in the form of a K-shape, an economic course that affects different categories of people, businesses, regions, and industries in varying ways.
• A plurality of respondents globally expressed the view that equities in their respective markets (45 percent) and global developed markets in general (43 percent) have recovered too quickly from the market slump in February–March 2020 and are due for a market correction within the next one to three years.

Paul Andrews, Managing Director, Research, Advocacy and Standards, CFA Institute comments:

“Our goal through our Covid-19, One Year Later report is to surface to policymakers a number of key learnings from the economic crisis that draw on the insights of our charterholders. With authorities ready to do whatever it takes to prevent a liquidity crisis in the markets, the economic stimulus unleashed to address the crisis may well have consequences of its own. While we readily acknowledge the difficulty in crafting one-size-fits-all public policies, our global survey highlights a number of important areas of concern where unintended consequences may already be in sight.”

Olivier Fines, CFA, Head of Advocacy EMEA, CFA Institute and lead author of the report comments:

“Across markets, we are clearly seeing signs of a multispeed recovery together with inflationary pressures, a potential for monetary stimulus addiction, tax hikes, emerging regulatory risks, and questions over the actual financial health of corporates. While novel, and potentially controversial in their stance on central bank independence, the Covid-19 stimulus measures take on a different light across the different markets where CFA Institute charterholders live and work. As our survey reveals, while many governments and central banks have implemented robust and comprehensive plans to meet the crisis head on, concerns are rising as to the eventual unintended consequences of this liquidity infusion.”

CFA

© CFA Institute