The Global Economic Outlook

We recently hosted a popular webinar on the subject of the global economic outlook, presented by Natasha Sarkaria, Investment Strategist at global investment manager BlackRock. 

Natasha did a brilliant job of providing both clarity and insight into a complex and highly fluid topic. So I thought I’d share some of my key takings from the webinar for those who weren’t able to attend. 

Global impact

The causes of the 2020 crisis were largely unexpected – and indeed unprecedented – but they were not hidden. This places us in a very different situation to the global financial crisis of 2008 which was fuelled by the growth of subprime mortgages in the US (for more background read this article on investopedia.com or watch The Big Short).

What’s more, the support measures introduced worldwide as a result of the Coronavirus crisis have been highly visible. Markets trade on the perception of future growth recovery and this visibility has provided a significant boost. 

Different responses

In the UK, support measures have focused on keeping people in employment. While in the US, where the same level of unemployment protection isn’t provided by the state, the focus has been more on supporting the unemployed. This, along with other factors, is having an impact on how US assets are valued – more on this later. 

Likewise, relative to the US, European[i] countries have good and accessible healthcare systems. And have introduced measures to contain the virus. European consumers also appear to be keen to get back to normal. For example, in Germany restaurant bookings were back up to 70% in July. Particularly encouraging when many restaurants are still closed and capacity isn’t back to 100%. Compare this to China, where data shows that traffic is back to normal in the week, but remains quiet at the weekend, and the difference is marked.

For all these reasons, a quicker recovery is expected in Europe than other parts of the world. A view supported by the fact that international investment is starting to return to Europe. The European Recovery Fund (ERF) is another positive sign for European investments. Both the fact that consensus on the European Commission proposal for the ERF was reached in as little as 3 months, and that there is now a mechanism in place to deal with future crises.

This puts to bed a lot of previous worries about European fragmentation, in stark contrast to the US where any discussions about economic recovery are more politically charged. The approaching US election also brings potential for considerable change – and we know that the markets don’t like change. US assets are currently more likely to have a neutral weighting, rather than the positive rating we have historically seen.

Cultural differences

Interestingly, the effect of national and local lockdowns on mobility is an effective way of tracking the initial impact of Coronavirus, as well as how economies are beginning to recover. 

For example, Google mobility measures show that in Japan, unlike other nations, mobility didn’t drop off in the initial stages of the pandemic. The impact of Coronavirus therefore hasn’t filtered through to the economy and employment levels as detrimentally as in other parts of the world. So fewer measures are now needed to get the economy back on track.

The differences in mobility and new cases aren’t only about the lockdown measures put in place. They can also be attributed to cultural differences. For example, France experienced an extreme lockdown but Google’s data suggests instructions were not as keenly observed by its users there as in other countries – there was only an 18% increase in activity at residential locations and a 56% drop in activity at workplaces. 

The German approach to lockdown rules was more relaxed, but Google data shows a bigger increase in residential movement as a consequence of restrictions. Arguably showing the German inclination to listen to authority, and a French tendency towards anti-establishment views. This show that how lockdown was managed is just as important to recovery as the specific measures that were put in place.

ESG investing

As you may know from my previous articles and posts, at AFM we are passionate about ESG investing (Environmental, Social and Governance). So it was positive to hear from Natasha that sustainable investments have performed well through the crisis. 

Companies who performed particularly well all have strong governance and culture in place. At AFM, we’ll continue to position ESG investing as highly as possible in our client portfolios into the future – for ethical as well as financial reasons.

If you’d like to find out about this important topic in more detail, including how the above insights are helping to inform investment strategies at BlackRock who manage a significant part of our Global Equity Fund, watch the webinar in full here.

I hope this summary is useful. We understand that our clients don’t always require this level of detail, so whether you’d like more information or just a confidential conversation, get in touch with us at [email protected] or call 0117 332 1570. 

 www.andersonfinancial.co.uk  

[i] For the purposes of this article, in line with the BlackRock asset class, any references to Europe excludes the UK.