Coronavirus - latest thoughts and outlook
The outbreak of the novel coronavirus COVID-19 is the most acute challenge that the world has faced in many years.
The virus has spread beyond China to more than 50 countries so far. Its effects, and the efforts to contain it, are combining to create a greater global shock than many of us anticipated. This widespread fear and uncertainty around the virus is reflected in torrid trading on the world’s financial markets.
The recent market falls have been some of the worst in history. However, it’s worth remembering that, after other periods of major volatility, such as in 2002/03 and 2008/09, markets went on to recover in the long term.
What about global economic growth?
Governments and central banks are working to counter the economic effects of the virus. In the US, the Federal Reserve made another emergency rate cut (15 March). The UK Chancellor, meanwhile, pledged a £350 billion ‘lifeline’ package of financial support. It included loans, suspending business rates, grants for retailers and hospitality businesses, as well as other aid.
Unfortunately, neither monetary nor fiscal policy will be able to fully offset the near-term disruptions. Therefore, financial stress is likely to persist, at least until there is clear evidence that new cases of the virus are slowing.
As such, we expect global growth to fall in the first three quarters of this year. A number of countries will likely enter technical recessions – that is two consecutive quarters of negative economic growth. For full-year growth, we expect just 1.7% in 2020. This would make it the third-weakest year for the global economy since 1980. Only 1982 and 2009 have been worse.
However, if the spread of the virus slows in the second quarter of 2020, we expect growth to rebound from the fourth quarter onwards.
Our long-term focus
Our investment portfolios are not immune to the recent market volatility. However, we remain strongly focused on the opportunities that the market volatility has unearthed and on sustained drivers of long-term returns for clients.
We continue to favour companies we view as long-term structural ‘winners’ – those with real sustainable growth potential. We are also focusing on businesses benefiting from changing behaviour caused by the pandemic, for example, ecommerce and certain areas of healthcare.
There is no doubt this is a period of unprecedented uncertainty. However, as long-term investors, we take comfort from the fact that good quality companies, like the ones in which we invest, should have a better chance of surviving periods of difficulty, like the one in which we currently find ourselves. We believe that, in time, share prices should begin to reflect a more positive outlook once we start to see some semblance of normality returning to daily life.