Julius Baer’s modelling indicates that a steady recovery from the economic damage caused by the global Covid-19 pandemic is currently the most likely outcome. An invited local audience of more than 100 people heard from experts at the leading Swiss wealth management group’s bi-annual Guernsey Market Outlook event, which took place six months to the day since the start of lockdown.
Christian Gattiker-Ericsson, Julius Baer’s Global Head of Research, outlined the prospects for economic recovery following the recession caused by Covid-19, and the themes that will impact investment performance into the fourth quarter of 2020.
Mr Gattiker-Ericsson, who addressed Julius Baer’s Guernsey Market Outlook event via live video link from Zurich due to travel restrictions, said that global markets are currently in a phase of steady recovery and that hopes of a swift rebound are slim.
A steady recovery, he said, assumes that economies will adapt to living with the virus and a vaccination becomes available in 2021. This will result in ‘V-shaped recoveries’ for financial markets, following the lows of March this year, and continued monetary and fiscal stimuli from governments to support this. Julius Baer’s modelling indicates that this outcome is 75% likely, though the percentages do shift frequently.
“The real measure of recovery is when we can say that economies have returned to pre-crisis levels,” said Mr Gattiker-Ericsson. “China was the first major economy into the crisis so it’s natural that they’re the first to come out the other side and return to where they were before. This indicates that the cyclical picture is improving, even if there’s still a long way to go for most other economies.”
Government support is necessary for recovery
There is no way out of the post-crisis recession without governments’ ability and willingness to provide continued fiscal support. Mr Gattiker-Ericsson shared data on different nations’ fiscal stimulus responses to the crisis with the audience, showing that Japan is one of the biggest global spenders, with 22% of its GDP dedicated to recovery. The UK lags far behind (with around 5% of GDP spend) but Guernsey’s response was acknowledged.
“I know that over in Guernsey your government has responded with economic support for businesses and individuals,” Mr Gattiker-Ericsson said. “Fiscal support is absolutely crucial for recovery so the package, coupled with the island’s proactive lockdown measures and return to a form of normality, should set Guernsey on a relatively healthy path.
“Emerging economies are the ones that will struggle to provide effective fiscal packages, so we’re expecting further volatility in those markets.”
Investment performance in Q4
The audience was told that market performance over the next quarter will be determined by four factors: the recovery of the global economy, the result of the US election, the move to make cities more sustainable, and the search for new asset classes that offer portfolio stability.
Craig Allen, Head of Investment Management at Julius Baer Guernsey, outlined the winners and losers from the past six months and some of the areas where his team are focusing their clients’ portfolios.
“Bifurcation has been the big theme of the market this year,” said Mr Allen. “There’s a clear divide between the winners and the losers as some stocks, funds and markets have really suffered, while others have benefited. American and Chinese indexes have a higher proportion of technology stocks than UK indexes, for example, and have fared better as tech stocks have performed well throughout the crisis.
“US equity performance is therefore one of the best-performing assets in the world over the last six months, which our clients have benefited from. We’ve also explored new opportunities presented by the crisis, such as giving our clients exposure to Chinese government bonds and the Chinese Renminbi.
“The most crucial thing investors can do at this time is to ensure they have diverse portfolios that are invested globally. This crisis is a worldwide one so it’s having differing impacts on different markets; being widely invested is a way to mitigate that disruption. Our team have used our global research capability to continue to deliver positive portfolio performance this year, despite the obvious challenges and market dips of the past six months. We invest globally for our clients to give them the best chance of returns, even in trying times.”
The main picture features Christian Gattiker-Ericsson, Global Head of Research at Julius Baer, on the left and Craig Allen, Head of Investment Management at Julius Baer Guernsey, on the right.
