The World's Recovery and your Investment Priorities

04/20/2020

We are living in unprecedented times, with much of the world under lockdown due to COVID-19. There are a multitude of potential outcomes resulting from the increasingly extreme global measures being taken to prevent its spread and of course many unanswered questions regarding the lockdown exit strategy or how it all ends.

Around the globe, governments have aggressively implemented lockdowns while offering unprecedented levels of stimulus from central banks (President Trump has signed the largest stimulus package in US history worth $2 trillion) to support economies and keep financial markets operating effectively. As a result, we have strong reasons to believe the massive but temporary economic shock will be overcome.

Financial markets tend to reflect changes in the outlook for economies and corporate earnings well ahead of fundamentals and this should mean that most of the negative news is largely 'priced in' today. Barring a significant worsening of the virus' impact such as an uncontrollable wave of second and third round infections, markets have the potential to recover strongly from current levels.

The Chinese equity market has been a perfect example of this. The market bottomed at the beginning of February around the time the spread of the virus peaked there. It subsequently fell further in the following weeks due to the weaker outlook for growth outside of China, but it is still by far the best performing major market globally year to date.

We are not epidemiologists and we have no edge in forecasting how the pandemic will play out, but what we can say and are observing is that market participants have moved to discount a Global Financial Crisis (GFC) style outcome for many risky assets. But this is not 2008; we do not have a financial crisis today (and the powers that be are doing their best to prevent one), and we are optimistic that with continued preventative measures in place, the outbreak will be brought under control. A recovery is a matter of when and not if, and while it is futile trying to pick the exact turning point, we know that markets are likely to move higher in advance of any economic and humanitarian recovery.

In the meantime, we would suggest that as an investor, you focus on trying to generate real returns, especially since share prices are significantly lower than they were pre-coronavirus with shares in some of the world's most solid companies much reduced in price. The key to a successful investment strategy is simple - buy high quality assets that produce income, diversify the assets you buy and take a long term view. If you do that you will not go too far wrong!

If you are unsure whether now is a good time for you to invest, why not email us to work out your investment priorities and plot the right course for you going forward?