Coronavirus Update Letter From John Haynes - Head of Research, Investec
Please click here for the Coronavirus Letter – John Haynes 30 March 2020
Investec’s Current Market View
After substantial falls in price, risk assets (e.g. equities) are attractively priced relative to their long-term prospects, whilst insurance policies (e.g. sovereign debt) now fully reflect their “insurance value”.
Crucial to this view is our judgement that the financial system itself is resilient and that the monetary and fiscal policy measures taken by Central Banks and Governments worldwide will substantially protect the fabric of the world economy whilst it is voluntarily “shut down” (on a rolling basis) to control the viral load on our healthcare systems. When the smoke clears, therefore, we believe that the intrinsic value (long-term earnings power) of the global economy will have been only modestly impaired by this traumatic, but temporary, experience.
In these extraordinary times, we are being extraordinarily well compensated not to “bet against” our governments, our monetary authorities, our brightest and best scientists (even no cure is produced, a medical control regime for the source of the problem is inevitable, given the resources and expertise dedicated to finding it) and our own resilience as individuals.
This move does not call the “bottom” in share markets. In the next couple of months the newsflow will be appalling. A visible picture of human suffering will unfold before our eyes at the same time as economic data reminiscent of the depression era.
Recognising that our job is to do what is right, not what is easy, we are looking – in a modest and gradual way in an appropriate manner dependent on our agreed investment strategy – for opportunities in our managed portfolios. If equity markets fall further and our central expectation that “this too will pass” is not challenged, we would expect to add further to our recommended risk budget.