Throughout the coronavirus crisis, Funds Europe presents some of the best market commentary from fund professionals. Today, Beat Thoma, CIO at Fisch Asset Management says markets have priced in a two- to three-month shutdown.
The coronavirus continues to dominate financial markets. In the US, the reported figures are not yet meaningful as extensive testing is only now slowly getting underway. The coming days will show a more realistic picture of the situation there and influence markets accordingly. However, the markets’ reaction to the catastrophic and higher than expected initial claims for unemployment benefits in the US have provided a positive technical market signal for now.
The aid packages of governments and central banks are now in the region of 10 to 15% of annual GDP which covers a shutdown period of two to three months and if it becomes apparent that these shutdowns will be eased earlier, then a rapid and strong recovery can be expected. This is because we have already seen massive injections of liquidity, and if this positive scenario plays out, there will be a lot of energy in the system. Stock markets worldwide are currently priced in around two months of shutdown. Accordingly, deviations from this timeline will lead to corresponding upward or downward moves.
In the long term, even if the pandemic develops favourably, in some sectors longer-lasting structural damage can be expected. However, within credit markets, investment-grade and high-yield bonds should be looked at separately. The purchases of investment-grade corporate bonds announced by the US Federal Reserve and increased market liquidity, when compared with the high-yield segment, do provide a better outlook.
If the crisis does not escalate, and the current monetary and fiscal policy campaign against the consequences of the epidemic is successful, there is a justified hope that the previously substantial price declines will be recovered to a large extent in the remainder of the year.
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