Perspective

Webinar: risks and opportunities in life after Covid-19


An extraordinary year "started first with the lockdown in China in January," explains Caspar Rock, who begins this presentation with a high-level overview of the past six months.

"China's lockdown was followed by a short period of complacency in global markets – before fear really set in," he says.

Severe share prices falls in February and March were "offset by central banks, especially the Federal Reserve, putting a line under the markets and leading to a 'risk-on' rally."

The rally saw global stocks rise approximately 20% in the second quarter, led by the US. Technology and healthcare stocks were prominent in this recovery. The UK market – due in part to its sector composition – was a comparative laggard.

In recent weeks, markets have "shown a change in pattern", Caspar says, with investors increasingly concerned over the scale of any rebound as economies emerge from lockdown. The prospect of secondary waves of coronavirus infection, and rising job losses, have altered the market's mood.

Measures of sentiment show slight improvement since the period of the market's trough, but remain historically low. "This is an unloved rally," Caspar says.

Risks and opportunities ahead

While he expects growth to recover in the second half of this year, Caspar highlights the near-term danger of Covid-19 spreading again as countries lift restrictions. The timing of any potential vaccine will play a crucial part in economic outcomes, he says.

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For now, monetary and fiscal measures taken by governments and central banks around the world are proving supportive – but over time these pose an inflationary risk.

In the second part of the webinar Chris Lewis outlines some of the major themes already at play in global markets before this year – but which we think have been accelerated by the Covid-19 pandemic.

One theme is the persistence of low interest rates. Covid-19 has seen rates drop again as part of central banks' response to the crisis. Chris believes that while in the medium term "rates will be higher than today's exceptionally low levels", they will remain relatively low in comparison to pre-crisis levels.

In another long-term trend, that of rising government debt, Chris points to the likelihood of lower, long-term returns from government bonds – they are "unlikely to repeat the performance of the last 40 years."

Increased rates of technology adoption; more use of data analysis and storage services; a growing trend to "onshore" aspects of industry and increased global spending on healthcare are some of the other macro trends Chris covered. 

Not to forget the 2020 US election...

The issue of the US election has "fallen by the wayside" in the wake of the pandemic, Caspar suggests. "It's difficult to discern how markets might respond. When Trump was elected four years ago, the market took a dim view of it at first and then started rallying.

"If Biden wins, there are a couple of things you would expect to happen. One is that the Trump tax reforms would be rolled back to some extent."

Both sides are talking about further fiscal stimulus - and perhaps we would see more of this under a Biden government, Caspar says.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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