2. During the COVID-19 pandemic, we have witnessed significant shifts in the pattern of investments across the world. Please discuss a few examples along with their causative factors.
COVID-19 महामारी के दौरान, हमने दुनिया भर में निवेश के पैटर्न में महत्वपूर्ण बदलाव देखा है। कृपया उनके प्रेरक कारकों के साथ कुछ उदाहरणों पर चर्चा करें।
Demand of the question:
It expects students to observe and mention the shift in pattern of investment across the world with relevant examples. It also expects to discuss the reasons for the shift.
As per World economic situation and prospectus 2020 of United Nations Conference on Trade and Development (UNCTAD), it is observed that the economic uncertainty sparked by the Covid-19 will likely cost the global economy $1 trillion in 2020.
Almost all the sectors of the economy are devastated by the COVID-19 impact, in these uncertain times investors chose a durable and safe way to ensure return on investment. Hence, investment patterns changed across the world as follows:
- Investors across the world chose to invest in the most dependable options to invest such as investment in the high value metals is increased in such a way that the prices of gold and silver are skyrocketed.
- For instance, gold touched around 56000 rs. for 10gm and silver cost touched nearly 75000 rs mark for 1kg.
- Industrialists in Europe are re-locating their businesses to South Asian countries like India, Vietnam, etc.
- As health becoming the most important issue in this pandemic, people are investing more in buying medical/health insurances. For instance, Health insurance sector saw a 7% rise in investment relatively with pre-covid19 times.
- People are investing more in the essential commodities markets related stocks.
- Also investment in the E-commerce sector has increased, as people are preferring to stay at home and avoid going out.
- For the first time in the history of the Indian capital markets, Foreign Portfolio Investors (FPIs) have sold securities worth over ₹1 lakh crore in a single month (March 2020).
- Investors also chose to invest in the medical health related product manufacturing and services. e.g. Boom of sanitizer and mask manufacturers is seen across the globe as it was the need of the hour.
Following are the major causative factors for change in investment pattern across the world:
- As COVID-19 infection spreads fast has potential to spread millions of people within less span of time, no medication or vaccine for it has halted all the economic activities as health of people is of prime most importance. Hence, change in investment pattern is observed due to uncertainty of market recovery.
- According to market participants, the ongoing COVID-19 pandemic that has affected stocks worldwide is the primary reason for such record outflows as foreign investors move away from riskier assets and emerging markets.
- The global economic slowdown due to the supply chain disruption and market forces at halt has caused the loss of trust of investors in the earlier traded securities.
- Interest rates: Investment is financed either out of current savings or by borrowing. Therefore investment is strongly influenced by interest rates. High interest rates make it more expensive to borrow. High interest rates also give a better rate of return from keeping money in the bank. As in these uncertain times where people are utilising their hard earned savings for survival, the investment choices of people have changed radically.
- Economic growth: Firms invest to meet future demand. If demand is falling, then firms will cut back on investment. If economic prospects improve, then firms will increase investment as they expect future demand to rise. As COVID-19 has impacted the world economy investors are not willing to take risk, as global economic recovery is far in sight.
- Productivity of capital : Even though if an investor chose to invest in the production process, the profit margin from the investment is not sure and hence, less or no investment is taking place.
- Government policies: Government policy of making containment zones and not allowing interstate , intra-state movement and transport has halted the production capabilities.
Although, it will be unreal to expect the investment trajectory to move upwards very easily post-covid19 crisis, following measures can be implemented to normalise the investment pattern:
- Need of the moment is to expedite the development of vaccine for COVID-19, and swift and wide scale availability of the economy across the globe. So, that people can start their all their works in normal situation.
- A large scale fiscal stimulus for the economies to go back to the earlier market transactions is the need of hour.
- Also customization of approach are also needed as different sectors of economy have impacted differently.
- Issues with the banking sectors are also needed to be tackled. Such as NPA’s issues may aggravate the crisis in economy.
- Also providing lucrative investment opportunities for business persons and institutions so that their trust can be rebuild in the economy and further economic progress can be achieved.
Impact of COVID-19 is unprecedented and the downside is that it has affected almost all the sectors of the economy in a single shot. However, the upside is expedited vaccine development for COVID-19 shows some promising results. Hence, necessary steps needed to be taken as early as possible which will supplement the recovery of economy.