Johanna Kyrklund, Chief Investment Officer and Global Head of Multi-Asset Investment
IT PAYS TO BE PATIENT
A
s lockdown continues for millions of us across the world, we all know we must be patient. Good things come to those that wait, as they say. This seems to me to be true not only from a personal viewpoint, but also from an investment one at the moment. Since this crisis broke it’s been difficult to focus on anything but the short term amid daily news flow and extreme market turbulence. The recent actions of governments and central banks have allowed us the space to refocus, lift our heads and look further down the road to the six to 12 months that lie ahead.
In the longer term, with the massive stimulus measures that have been announced, there is also the risk of a significant build-up of public debt. This is an outcome which is likely to lead to even more financial repression, whereby interest rates are kept below the level of inflation. Although stock market indices, particularly the US S&P500, suggest that there is still too much optimism around corporate earnings, we continue to see a two-tier market. So-called “quality” and “growth” stocks are trading at expensive levels and “value” stocks look extremely cheap.
There has been much talk of whether a potential economic recovery will look like a V, a U, an L or a W
There has been much talk of whether a potential economic recovery will look like a V, a U, an L or a W. My view is that expectations of a V-shaped recovery are too optimistic. It looks likely that some form of social restrictions is likely to persist into the third quarter and that the scale of this demand shock will cast a shadow over growth for the foreseeable future. Covid-19 only serves to reinforce our concerns that growth will be weaker, rather than stronger.
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Spring 2020 www.rsmr.co.uk
We are yet to take a more positive view on currencies or shares that are cyclical. Ultimately, we decided that it was still too early to expect their comeback because the economic outlook remains cloudy. Signs that the coronavirus infection rate may be flattening are welcome news in this context, but the only way of containing the virus is through reduced levels of economic activity. Just as we need to be patient about our working and living arrangements, we believe that some patience is still needed before significantly increasing our exposure to those more economically-sensitive areas. n
