For the past three months, we have seen a phenomenal return on stock prices, which has led to an increase in bond prices and a decline in returns. This was a surprise to most investors, says Astra Asset Management executive director Ivo Blagoev in the "In Development" program. Bloomberg TV Bulgaria.
"Investor expectations about the economic cycle have changed a lot, and what will be the main central banks, especially the Federal Reserve." Just four months ago, financial markets estimated more than 50 percent two or three times in 2019. Until a week ago, investors predicted a reduction in the base rate by the US central bank. It is not normal for just four months to change the economic situation on a global scale, especially in the US, that everyone can start thinking that the economy is going into recession, "Blagoev said.
According to him, the bond market currently reflects the lack of inflation, expectations of economic slowdown and recession.
"President Trump may have been the highest in his assessment of the Federal Reserve's performance in terms of rising interest. It was noisy when rising Fed interest rates and rising interest rates in the bond market drove a sharp decline in stock market prices, "Blagoev recalled.
In his words, when the ECB announced that it would not raise interest rates, and when China's central bank cut reserve requirements for Chinese banks by 100 basis points, this boosted equity markets.
"Securities investors have accepted this as a sign that the global economy is not well," he said. He asked why stock prices are rising if a recession is expected. "Stocks come out of liquidity – the more liquidity they have, the easier it is to choose to buy a risky asset. What I do know is that we are at the end of the economic cycle, which means that after 3, 6, 12 months and even more things will turn. That is, the bubble will reach its peak, "predicts Blagoev.
He expects stock markets to rise and economic recovery resume.