The Covid-19 pandemic has altered the global economy, but the new normal will look better than many people are speculating, experts from Julius Baer have told an invited Guernsey audience.
Christian Gattiker, Head of Research at Julius Baer, shared analysis and insight into global economic trends at the leading Swiss wealth management group’s bi-annual Market Outlook event. Christian said that global markets had entered the recovery phase after the shock of the pandemic and there were signs of optimism among the data that the ‘new normal’ will look more positive than many had predicted.
The recovery from the pandemic-induced recession was being aided by the fiscal and monetary policy interventions of many governments, and the financial stability induced by central banks injecting more money into economies.
“Many central banks have undergone a fundamental change during the pandemic,” Christian said. “Whereas previously they steered economies by the credit channel, they have increasingly, especially in the West, turned to boosting financial wealth as their principal tool.
“In the United States, for example, the value of privately held financial assets in relation to GDP has gone from a factor of three to a factor of six. The net result of that is private households have seen a boost in wealth and everyone therefore feels richer. We didn’t see these kinds of gains after the recession in 2008.”
Christian said that many of the sectors not sensitive to COVID-19 had seen productivity increases across the course of the pandemic. “Areas like wholesale, financial services and information technology have more than doubled their productivity, which allows them to increase wages and is a strong incentive to invest. This is enhanced by low interest rates creating an environment where financing is almost free.”
Moving onto growth areas for economies and investors alike, Christian said that some of what his team refer to as ‘mega trends’ are present in our everyday lives. “The healthcare sector has experienced major changes,” he said. “That’s both from a medical industry perspective and in people’s behaviour in relation to healthy living. Future mobility is going to be very different to what we saw before 2020. So airline travel may have peaked, and electric vehicles (EVs) are now undoubtedly the future.
“For investors, that means they can look in the obvious places for equity investments, like Volkswagen, but they can also look across the supply chain to EV component manufacturers and motor insurers. The rise in EVs brings opportunities for investors to explore new growth areas in line with lifestyle factors.”
The impact of inflation
Also speaking at the event was Craig Allen, Head of Investment Management at Julius Baer in Guernsey, who shared some of the most common questions that clients were asking.
“Inflation is a concern for clients at the moment,” he said. “As a story it’s moved from the financial pages to the front pages, and the greater media prominence often raises concern. However inflation is not necessarily bad for the individual or for the investor. So yes, it typically means you’re paying a bit more for daily goods like milk or petrol, but if you own property it means the price of that is going up.
“The key for any investor is to stay ahead of inflation. Cash holdings are not the answer as interest rates are lower than inflation, and ten-year UK Government bonds have a yield of about 1%, which is no good when inflation is around 3%.”
Craig said that investing in equities remains the best option, but some clients prefer to stay out of that space so have found good value in a hedge fund offered by Julius Baer.
“Different investors have different preferences and strategies,” Craig concluded. “But equities offer a wide variety of options and new arenas have opened up because of COVID-19. The key things to remember are to stay invested and to have a suitably diverse portfolio – that is the best policy for getting good returns.
“Our sterling balanced portfolio, to take one example, is tried and tested in beating inflation over time, and that’s because it is split across bonds, equities, cash and alternative assets, across a number of regions.”
The main image shows Christian Gattiker and Craig Allen.