Investment Outlook

The Covid-19 crisis caused equity prices to drop by 30 to 40% in less than a month. Fortunately, central banks were quick to step in. Monetary stimulus measures fuelled a strong market rebound. Where will markets go from here? Let’s have a look at the arguments used by investors leaning towards a pessimistic view, the ‘bears’, and their optimistic counterparts, the ‘bulls’.

Central bank policy measures, taken in response to the coronavirus, have decimated core government bond yields. In the strong risk-off reaction we have seen recently in markets, credit spreads also widened considerably. The latter currently present an opportunity for investors, especially those bonds that are part of the open-ended quantitative easing programme of the ECB.

Investors can profit from longer-term themes experiencing accelerating adoption owing to covid-19. We see opportunities in areas such as online shopping, digital payments, home entertainment and technology that enables home working, such as cloud computing and cyber-security.

So far this year, the US dollar has risen versus major currencies and even more versus a broad basket of currencies. Do we expect this trend to continue? In the near-term (up to 3 months) yes, in the longer-term no. We expect a lower dollar in the longer term.

The prices of almost all commodities came under severe pressure in the first months of this year. Only the price of gold has risen slightly. Although commodity prices may recover as the economy picks up, we are cautious. Commodity inventories have risen, which means that upward price potential is limited.

We have never experienced such a global lockdown of economic activities, much as we have not previously seen such large support from fiscal and monetary policies. Nonetheless, there are some common observations possible, including behaviour in bear markets and what happens before and after a trough in markets.