COVID-19 pandemic creates new investment landscape for the coming decade

The impact of the Coronavirus pandemic on the investment market for the next decade will be far reaching according to specialists from Portland Financial Management (PFM) and Cazenove Capital.

During a webinar entitled ‘Investing in the 2020s’, Cazenove Capital’s Investment Directors Ahmet Feridun and Nicholas Georgiadis, and PFM adviser Peter Glenton, discussed how the current crisis, and government stimulus in reaction to it, might affect investors in the coming years.

Ahmet said “The effects of the Coronavirus have been significant and wide ranging, even over the relatively short period that the pandemic has manifested itself to date.

“Back in April we created a stylised map of how the pandemic would play out and what the main focus would be at each stage.  Following the shutdown phase, we now believe we are at the start of the recovery back to normality. 

“How long this recovery will take and whether we will experience any bumps on the way is a hard thing to predict.”

While there is a lot of discussion around the day to day stock market gyrations that are a consequence of the Coronavirus crisis, investors should look at the longer-term picture.

Ahmet said: “When normal life finally does resume, we do believe that the longer term outlook for economies and markets will be different from where they were; either from the Coronavirus or because of the continued manifestation of structural trends that were in existence even before COVID. 

“In many cases we think the virus has accelerated some of these structural trends, whilst in others it has delayed but not stopped the inevitable completely.”

“While asset returns will be lower than what we have witnessed over the past ten years, for the next ten years, we expect to have a clear preference for equities over bonds,” explains Ahmet.

“Bond yields have fallen dramatically over the past 40 years and many are now either close to zero or negative, severely restricting their ability to generate returns from current levels.”

Tracking the performance of global equity markets from 1970 to the present day, the crises of 1999 and 2008, as well as the most recent crash, only appear as short-term interruptions to a steady upward trend.

“Equity markets are more volatile over shorter time periods, but it does pay to stay invested, especially after periods of drawdowns over the longer term,” said Ahmet.

Cazenove considers there are key investment themes for the decade to come including technology, which emerged as key driver of returns in the 2010s and is expected to continue to perform similarly in the 2020s, supported in the short term by the forced digital learning curve caused by the pandemic. Healthcare will also be attractive due to an anticipated rising spend to deal with the world’s increasing ageing demographic.

“We expect technology and healthcare stocks to lead equity markets higher over the longer term, despite the challenges both may face from a political and regulatory standpoint.”

It is predicted that Asia will be the driver of global consumption, due to the increasing wealth of a region that is home to a large proportion of the world’s population.

Environmental considerations will also influence investment opportunities this decade, as the de-carbonisation of industry accelerates to meet climate change targets.  Companies that are managed in a sustainable way that is good for the environment and that have good governance structures are expected to outperform their peers.

“We expect companies that score well on Environmental, Social and Government (ESG) factors will provide better risk adjusted returns over the longer term,” explains Ahmet.

“Our research shows that the top ranked ESG stocks have outperformed the broader US market over the recent crisis.”

Cazenove considers that increased debt burdens will become the new normal due to low interest rates, while gold, which is supported by low or negative interest rates and worries about inflation due to the significant government stimulus, will remain a core investment opportunity.

“As the attractiveness of bonds fades, we believe that gold warrants a place in client portfolios over the longer term, said Ahmet. 

“Lower real yields and central bank money printing reduce the relative costs of holding gold vs bonds: whilst in the past bonds would provide a decent income yield, this is no longer the case and an asset such as gold, whilst not delivering any income, is perceived to offer inflation protection.” 

PFM adviser Peter Glenton concluded: “Financial markets around the world are likely to continue to be highly influenced by the consequences of the pandemic for some years to come but there are opportunities for investment that will deliver returns as the economic, cultural, political and social environments evolve.  Past interruptions in the equity markets have often proven to be short-term.  Long-term investors should take comfort from this to look through the immediate concerns.”

This article is issued by Portland Financial Management Limited which is regulated by the Financial Conduct Authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

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