Recent Trends

World stock markets have remained volatile over the last month. Initial further recoveries were followed by a
correction in May – just over the last two days, equity prices have come down by ~5%. US stock prices are
now roughly half-way between the February peak and the March low, helped by the good performance of tech
stocks. Europe fared slightly less well and financial stocks are underperforming the broader market.

What is behind it

As the spreading of covid-19 has slowed and the impact becomes somewhat more transparent, markets have
started to look beyond the pandemic, and the risk attitude of investors started to be similar to where it was
before the crisis. But the market is not a one-way street. By the end of April, stock markets were technically
“overbought” which is currently being corrected.
As we expected, the performance of different sectors has become more differentiated. Covid-19 winners made
handsome profits (like companies facilitating remote working; and a part of the healthcare sector). Financial
stocks lost ground as they are impacted by expected credit defaults and a realisation that interest rates might
have to stay very low for years to come.

What it will mean

Lots of bad news is still to come. Never have as many people become unemployed as quickly as in this crisis,
and the effects will filter through the economy. Q1 results reported by companies were already affected and
the impact will be felt much stronger in Q2. The economy will probably take beyond 2021 to get back to precrisis
levels. We will see many insolvencies, and the debt burden of governments will increase dramatically.
The US Congressional Budget Office is now expecting a deficit of $3.7 trillion for the current fiscal year – and
another 2.1 trillion for 2021. Figures like these are unheard of (and as recently as March, the estimates for
both years were around 1 trillion!). The extra debt will have to be serviced for years to come. And many other
countries will find it harder than the US government to find buyers for the required bond issuances – not only
companies will default, some countries are likely to do so also, with repercussions to be felt not least by
financial institutions around the globe.

But lots of bad news is also reflected in current valuations, and the vast liquidity pumped into the markets by
central banks will fuel an eventual price recovery. Companies will reduce costs and find new opportunities.
Good ones will come out stronger.

What to expect – and what to do

There is still plenty of uncertainty. As lockdowns are being relaxed, we don’t know yet to what extent the virus
can be contained, or by when we will have an effective vaccine. And there are other risks. Donald Trump
started to make China related noises again, raising concern about renewed trade tensions. The European
north-south divide seems to become more pronounced. We may yet see a hard Brexit. And given the vast
liquidity central banks feed into the market, longer term we may face a return of inflation.
We expect volatility and sector differentiation to continue, making the careful selection of investments
paramount. But we also believe that now is a good entry point for long term investors. Growth will continue to
be generated by the continued digitalisation of the economy; infrastructure and construction companies are
likely to benefit from big government spending programs; etc. Long term there is no alternative to equity
In our portfolios, we have benefited from the recent recovery but we also kept very meaningful liquidity
reserves, and we are looking at the latest downturn as an opportunity. The stronger the current correction,
the cheaper we will be able to buy for our clients. In the meantime, we keep investments diversified across
different asset classes including a position in gold.
We suggest you stay close to your financial advisor to help you get through these challenging times and make
the best of the emerging opportunities.
And as always… we wish you good physical as well as financial health!


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recommendation, endorsement, or offer by IWG or any third-party service provider to buy or sell any securities
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