Addressing the wall of worries
Our core views on the key themes driving financial markets are on track. We remain overweight risk in our tactical asset allocation and continue to see attractive investment opportunities.
WHAT YOU NEED TO KNOW
- The economy is recovering in line with our projected U-shaped path, underpinned by monetary and fiscal stimulus. Once COVID-19 is medically contained and eventually overcome, we think economic activity is likely to resume more fully.
- To help highly indebted governments borrow at affordable rates, central banks are likely to continue to keep nominal and real interest rates anchored at rock bottom for a long time. A lower discount rate applied to risk assets is likely to boost their present value.
- While the composition of the real economy and the equity market is different, the COVID-19 crisis has accelerated the shift to digital from physical, supporting companies that typically exhibit elevated margins, low capex and higher long-term growth rates.
- We don’t believe markets were overly optimistic about the macro outlook and are now correcting to catch up with a more sluggish pace of growth than expected earlier. Markets are forward-looking and most of the apparent “disconnect” can be explained away.
- Attempting to time the market tends to deliver lower returns. Missing the best days can be costly, and investing when the economy is weak but improving tends to produce better results than investing when the economy is strong but weakening.
WHY WE STAY INVESTED
There’s no shortage of worries for investors at the moment with significant stock market volatility. These concerns range from a variety of political risks now approaching – such as the US elections and the Brexit negotiations – to a sense that the perceived “disconnect” between buoyant risk markets and a more sluggish economy is finally beginning to close, with markets catching up with a more challenging reality.
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Chief Economist & Macro Strategist
Group Head of ESG, Sustainable and Impact Investing
Group Chief Investment Officer
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