Market NotesChristopher Peel - Chief Investment Officer - 22nd April 2020
Christopher Peel – Chief Investment Officer – 22nd April 2020
The global economy has been plunged into a deep recession as government leaders struggled with the difficult question of how to deal with the COVID-19 coronavirus.
Saving lives in the short-term was the prudent decision, but the containment policies leading to a total economic shutdown will haunt policy makers for years to come. The path taken could end up being far worse than the disease itself.
“It has been a volatile start to the year in most financial markets. However, there are several reasons to be hopeful for the future.”
It has been a volatile start to the year in most financial markets. However, there are several reasons to be hopeful for the future. The quarantine measures appear to be effective in slowing the spread of the virus and the scientific community is working 24/7 to find a workable vaccine.
As with other pandemics, history suggests COVID-19 will pass in time and the global economy will gradually recover. Several countries in Asia have already reached the peak of new infections and economic activity is slowly rising in China and South Korea. The same can be said for Italy, Spain, Germany and Portugal. This cycle of recovery will likely be repeated across the globe within months, supported by record low levels of interest rates, debt forgiveness and trillions of US dollars of fiscal stimulus packages.
“The impact of the self-inflicted global recession will be felt for many years to come, especially in the bond market. “
The impact of the self-inflicted global recession will be felt for many years to come, especially in the bond market. Money does not grow on trees and the cost of financing these emergency support programmes will last a very long time.
Future generations will pay a heavy burden in the form of higher taxes and debt repayments. Long-term investors such as sovereign wealth funds, insurance companies, pension schemes and individual retirees will need to seek investment returns from other markets, namely global equities, commodities and property. Given the recent selloff, these markets offer substantial upside in a new reflationary world and are likely to drive portfolio returns in the coming decade.
“Liquidity is key in the current trading environment and our portfolios have been defensively streamlined whilst remaining fully invested. “
Liquidity is key in the current trading environment and our portfolios have been defensively streamlined whilst remaining fully invested. The playbook is essentially unchanged from 2008/09, where positioning in liquid markets paid huge dividends during the recovery phase. In fixed income, we are overweight investment grade credit and underweight government, high yield and emerging market bonds. In equities, we are overweight quality stocks (healthcare & technology) in the US and Asia, underweight Europe and emerging market exposure is tilted towards Asia, specifically oil importing countries such as China, South Korea and Indonesia. In currency markets, we remain negative on the euro and positive on sterling, especially versus the US dollar. In commodities, we are overweight physical gold.
Chief Investment Officer
The pandemic serves as a timely reminder of how precious life is.
The 50th anniversary of Earth Day is a wonderful milestone in the ongoing battle to protect and safeguard this living planet. Natural resources are being depleted, but through government initiatives and social awareness, progress has been made in conserving what is left and exploring sustainable alternatives. ESG, SRI, Sustainable, Impact and Green investing have joined the mainstream and are now commonplace in investor portfolios. Making money and doing the right thing are no longer considered to be diametrically opposed.
Climate change is a fact of life and it is never too late to make a difference.
Working together, the future remains bright!
This investment Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person. Source of data: Tavistock Wealth Limited.
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