The great re-opening

One interesting aspect of this generational test for policymakers is how many have looked at the same problem and come to sometimes radically different conclusions on how to deal with it. However, at least some of these varying responses can be explained by how, where and when the virus hit their respective shores. For example, England’s experience so far looks very different from the rest of the UK, thanks in some part to the fact that London was the first major zone of infection, perhaps unsurprising given its size and international reach(1). Other factors such as the demographic profile of your respective zone of control, or how populous it is, are also important to consider.

However, this is a battle which the modern world should be better equipped to fight than its predecessors in many senses. The breath-taking pace of potential vaccine development is one example of this. However, another is our ability to watch in more or less real time what works and what doesn’t around the world. This is particularly important as much of the world outside of Asia now thinks about unevenly relaxing containment measures.

The experience of Asia

Asia is obviously quite a long way ahead in this battle. China, for example, imposed one of the strictest lockdowns to date back at the end of January (full lockdown was imposed on Hubei province on 23 January and two days later all provinces declared states of emergency) and began relaxing those measures around a month later. It’s not been straightforward since then. Further outbreaks, much as elsewhere in Asia, have led to re-imposed, albeit so far more localised restrictions.

From the perspective of the economic recovery, the analysis is complicated by the fact that none of these economies operate in a vacuum. They are all, to varying degrees, subject to economic forces beyond their shores. So although parts of Asia’s economy have recovered some of their previous lustre, the slump in demand from the rest of the world enduring their first wave of the outbreak has clearly weighed on Asia too.

Asia also teaches us that we should be wary of assuming that as soon as certain activities become legitimate again, consumers will return to previous norms.

The early openers

Higher frequency data, from electricity consumption to geo-location statistics, illustrate that the world outside of Asia is already making strides in that return to a new normal. However, some countries are moving a lot quicker than others. Again, we would point out that post mortems on one government’s efforts vs. another are not appropriate. Factors ranging from pre-existing differences in a country’s demographic, morbidity profile to how and where the virus landed on their respective shores muddy this analysis significantly. Aside from which, it is simply too early in this crisis to tell. Nonetheless, as noted above, this is an area where policy around the world is being fed in real time by live research. To this extent, there is some cause for tentative encouragement in the economies that have moved to open a little faster – There is so far no consistent evidence of a related spike in daily confirmed cases(3). It is very early days yet, but as time goes by we would expect policymakers around the world to learn from the successes and failures we see from others in this live global experiment. A reminder that this is a battle that will be most effectively fought with global transparency and co-operation(3).

Investment conclusion

The combination of returning global economic activity with positive news on the outbreak has provided further support for stocks in particular. Some of those areas deemed too trashy to take part in the first sharp rally in stocks at the end of March, have even started to find support. We again would warn those who are sitting on the side lines waiting for the perfect moment to invest – there is no such thing. Such market timing perfection requires clear sight of the future, not even mystic meg would claim such power. This is one of the reasons that we only do Tactical, short term, allocation changes at the edges of the multi asset class funds and portfolios we run for clients. We could never muster the confidence in our particular view of the shorter term incentives on offer to allow it dictate a larger share. From today, we still see a diversified mix of capital markets assets as your best tool to beat inflation over the next 5 to 10 years. Get invested and let us do the rest.

(1) Aron J, Muellbauer, J – Measuring excess mortality : England is the European outlier in the Covid-19 pandemic (18 May 2020) VOX CEPR Policy portal

(2) Tomb I – Global Markets Analyst: Encouraging, early lessons from the “early openers” (25 May) – Goldman Sachs International

(3) Branswell, H – What the world learned in eradicating smallpox: Unity mattered (8 May) – Stat news

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