Investor Insight - Summer 2020

Summary

• Covid-19 has already dented global growth in 2020
• Having fallen initially, equity markets have recovered as investors take a long term view
• Sovereign bond yields remain at or near historic lows across most developed markets
• The efficacy of health policy will be key in determining how long the pandemic lasts – the effects of the pandemic on the economy are likely to be long lasting
• The global economy may be less interconnected in years to come, due to changing supply chains, a larger role for fiscal and health policy and geopolitical tensions
• Changes already underway have been accelerated by the pandemic – investors must identify the winners and losers in the post-pandemic world

In the first quarter of 2020, the spread of Covid-19 around the world precipitated an unprecedented health emergency, forcing countries worldwide to respond quickly with dramatic measures to limit the spread of the virus. Stock markets initially plunged, as investors reacted to this sudden new threat to the global economy, while bond yields reached new lows, reflecting investor caution and the expectation of central bank monetary stimulus. At one point, the price of a barrel of oil turned negative, as low demand and a supply glut exhausted North American storage capacity. The world had seemingly been turned on its head in a matter of weeks. In time, markets have recovered much ground, comforted by both governments and central banks stepping in to ease the immediate impact of the pandemic on consumers and businesses.

The MSCI World Index, having fallen over 30% in February and March, was less than 10% below the pre-pandemic level at the end of June. Given the backdrop of an immediate global recession, and an uncertain path to recovery in 2021, such strong performance is hard to reconcile. Within bond markets, sovereign yields remain anchored, with the yield on a 10Y US treasury still well below 1%, suggesting a more pessimistic view of growth. While investors have learned to stomach the immediate economic implications of Covid-19, what lies ahead is still somewhat unclear. Nonetheless, even in a time of such uncertainty, there are some conclusions investors could draw with a degree of confidence, many of which have clear and important implications for businesses.

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Important information

Any research in this document has been procured and may have been acted upon by Close Brothers Asset Management for its own purposes. The information is being made available to you only incidentally. The views expressed herein do not constitute investment, taxation or any other advice and are subject to change. They do not necessarily reflect the views of any company in the Close Brothers Group or any part thereof and no assurances are made as to their accuracy. Investments may not be suitable for everyone. Unless otherwise indicated, all information and opinions expressed in this document are those of Close Brothers Asset Management and are correct as of July 2020.