But there could still be recovery within six months if certain conditions are met says financial advisor
A new month, a new quarter, but there is little overall optimism for a global economy gripped by pandemic.
The volatility seen in the financial markets in recent months will continue to challenge investors and their financial advisors. Although there are some opportunities for canny operators, there are also more scary times ahead.
It’s a far cry from the increases of 2019, which saw record investment income for Ontario Teachers, with measures of stock market performance set to plunge to new lows in 2020.
The S&P 500 sank 22% in the first quarter of 2020 and is likely to plunge to a record low this month according to bond manager Jeffrey Gundlach of DoubleLine Capital.
“I think we’re going to get something that resembles that panicky feeling again during the month of April,” Gundlach said in a webcast Tuesday. “We will get back to a better place, but it’s just not going to bounce back in a V-shape back to January of 2020.”
While investors may have been buoyed by markets rising following announcements of stimulus measures, they should be wary of rushing in to buy equities, JP Morgan Asset Management warned Tuesday.
“I’m not yet confident in advocating overweight risk assets positions because you’re vulnerable in that scenario to a deterioration of the news on the medical front,” Hugh Gimber, a global market strategist told Bloomberg. “The policy measures have helped but they’re not on their own enough for us to call a definitive bottom in this market.”
The role of FA’s in helping clients stay calm in these turbulent times is essential.
Worse to come
The co-founder of Oaktree Capital Group says that the pricing of assets is taking sentiment into account but warns that worsening conditions are not being weighed correctly.
“Assets were priced fairly on Friday for the optimistic case but didn’t give enough scope for the possibility of worsening news,” Howard Marks informed clients. “You may or may not feel there’s still time to increase defensiveness ahead of potentially negative developments. But the most important thing is to be ready to respond to and take advantage of declines.”
Marks added that, while large banks have bolstered their defences since the financial crisis, there could be trouble ahead for non-banks which are unlikely to receive government bail-outs if things turn negative.
China’s recovery is key
Nigel Green, CEO of global financial advisory deVere Group, also remains optimistic that recovery can be achieved before the end of the year, but this is conditional.
“I believe that the global economy is likely to be headed for recovery from a coronavirus-triggered downturn within six months – but only if mass testing is rolled out now and governments guarantee to support demand,” he said.
Mass testing should help spark supply but governments will need to continue support to shore up consumer confidence, or the demand side will lag.
Despite many tough months still ahead, Green says that if China’s public health and economic recovery pans out, then brighter things are ahead.
“I’m confident that global financial markets will stage a relief rally when there is a definitive signal that the infection rate is dropping and that cases have peaked. Investors will come off the sidelines and prices will jump,” he said.
