V-shaped recovery? Extremely unlikely！
Many investors have reached out to me, wondering if the stock market is considered cheap now to pick up some goodies. My take is “not to speculate”, because nobody can be entirely sure yet what the impact of this pandemic will have on the global economy. Even after the virus cools off, can the economy recoup lost time? To make matters worse, the end result could be a total change of the game…
For now, it is clear that we still do not have a firm grip on handling this pandemic. To attempt to dissect the current situation, there are three key areas for us to further consider:
1st, regarding the pandemic. COVID-19 is the main cause of the turmoil in markets. Lockdowns have essentially brought global economic activity to a grinding halt, and investors are panic-selling due to uncertainty over the degree of harm to the economy. Unfortunately, at the moment, we only know the consequences of the virus, and no one can be certain about what will happen next with regards to the pandemic. For there to be hope for the economy to turn around, a medical solution needs to happen. However, we are clearly not there yet…
2nd, the economic impact caused by the pandemic. Since the outbreak during Lunar New Year, global supply chains have been severely disrupted, and what was originally a China problem very quickly escalated to become a global problem. In order to deal with the outbreak, lockdowns and social distancing were put in place. How long will we need to return back to normal economic activities after the outbreak cools off? Will it ever be the same again? Until we are able to see a light at the end of the tunnel for this pandemic, no one can predict the outcome as yet… What seems assured though is a global recession is in the cards, the only question is how intense and extreme it will be…
3rd, and most importantly, the financial system issue. Most of the central banks’ rescue actions that transpired in the last two weeks are related to the financial system itself. We’re facing the collapse of the system. As investors have no knowledge of how the pandemic outbreak will end, how bad the economy will get hurt, they sell every asset and rush for cash, especially the US Dollar. When this happens, capital markets lack funds to finance businesses and daily operations which are often settled in US dollar. This has caused an abnormal strain on the liquidity and credit markets. Just yesterday, the US Federal Reserve has pledged unlimited QE and boundless lending programs to help companies… So you can imagine how severe and dire the situation must be right now… We can expect to see continued and drastic downside in the markets, unless the strain of the financial system can be resolved quickly.
With the entire world struggling with the containment of the outbreak and central banks throwing caution to the wind to try and do whatever it takes to turn the tide… How does one even think about the possibility of a V-shaped rebound?
The hard truth is that investors’ are in for a bumpy ride, with no end in sight… Only after the dust has settled, can investors examine the damage and impact caused to the economy and the value of asset classes.
As investment managers around the world experience high capital outflows, it is reassuring and motivating for me to see that most of our clients remain invested with CP Global. Furthermore, we have witnessed an increase in new investors, and some existing clients even topping-up their accounts during this period.
I recognize that this trust and confidence in our ability to perform during times of crisis does not come overnight. Years later, after the dust has settled, I’m confident that all of our investors will be able to look back and see that they have made the right decision.
In the meantime, please refrain from speculating. Stay prudent. Stay safe.
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