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7 Dec 2021
The Pandemic Redefines the Course of Investment Practices
The Index Today
The Index Today — The COVID-19 pandemic has wrought an innumerable amount of changes in the world, especially in the realm of corporate investments.
According to a research conducted by Focusing Capital on the Long Term (FCLT), the pandemic led companies to favor long-term investments while their investors were more inclined towards making short-term investments. Although companies usually tend to repurchase their own stocks during periods of cash influx, the pandemic saw many corporations investing in alternative ventures including research and development, thus cementing their businesses in the long run.
The FCLT research also highlights the changing habits of equity fund investors. While the pandemic has led to an increase in the holding periods, the average holding period has now hit a record low since 2009. This could be attributed to the index recomposition and the use of passive funds as an investment vehicle. The pandemic has also aggravated the global wealth inequity even as attempts are being made on a worldwide scale to bridge the monetary gap.
Additionally, the FCLT research found that Chinese and American families are vastly different in their investment habits. While both invest similarly in real estate, American households are more prudent in investing in alternative assets which makes them richer than their Chinese counterparts.
FCLT also contends that sovereign wealth funds have emerged as the archetypes of short-term investments. In a bid to ensure the financial security of their countries, governments across the world have turned to short-term investments, abandoning their initial favor of long-term ones.
In short, the pandemic has popularized and enhanced the effectiveness of short-term investments, diverting the flow of potential investors towards the same from an otherwise long-term investment-favoring population.