Keep calm and carry on

Keep Calm

An unexpected global pandemic has triggered the third bear market of the 21st century. At the start of the year, equity analysts had priced in profits growth of 5-10% a year, now they are downgrading their profits estimates by 5-10% a week. One of the deepest economic recessions since the 1930s will expose some well-known and some less well understood imbalances, whether economic, political or financial.

The coronavirus has created a major shock to the Chinese economy in the near-term, and as the virus has spread East to West the size and duration of the shock on both China and the global economy has risen. Disentangling the shock between the manufacturing and services sectors helps to illustrate the impact. It also reveals the potential for sharper than normal spillovers between countries. Overall, while the near-term corona shock may be very large, we expect that it will not derail the global economy; however, risks of a worse outcome remain high, even with supportive measures by policy makers.

The better news is that the policy response is faster and larger than would have been thought possible. As and when the pandemic is brought under control, then the conditions are falling into place for at least a moderate, possibly a rapid, recovery in activity. However, even though financial prices will benefit, this will not be a return to the world we once knew. Long-term implications are manifold, including what sorts of assets to buy to protect portfolios or benefit from the upside.

View Full Article – published by Aberdeen Standard Investments on 29th April 2020