Market Perspectives April 2020
Welcome to the April edition of “Market Perspectives”, the monthly investment strategy update from Barclays Private Bank, which is also available to download as a PDF [PDF, 632KB].
The accelerating spread of the Covid-19 pandemic dominates financial market sentiment. After sharp falls in equities, there are tentative signs that a bottom in valuations is near.
The epicentre of the pandemic is moving from Europe to the US. Unprecedented fiscal and monetary measures from the US, eurozone and elsewhere, to counter the economic fallout, are welcome. A short, but historically deep, recession seems unavoidable. However, the fiscal responses suggest that the potential effect on output may be partially mitigated.
Assessing Covid-19’s likely effect on earnings is close to impossible, though most coming downgrades seem to be already reflected in valuations. The rebound in markets may be violent. That said, caution seems warranted for now. As ever, quality remains key while uncertainty is so high.
In the shadow of the virus, the emergency interest rate cuts from central banks suggest that rates could be lower for longer. Searching for sectors least exposed to the effects of the virus is key. In this respect, telecommunications, utilities and pharmaceuticals’ credits seem more insulated than most.
With volatility elevated, diversifying into private markets may be worth considering. Data suggests that the asset class tends to outperform public markets the most during a period of crisis.
The oil price plunged below $30 a barrel in March, as the market was hit by Saudi Arabia and Russia ramping up production and the pandemic slashing prospective demand. The price is unlikely to recover much in the short term. Indeed, the market is set to remain imbalanced for most of the year.
The crash in oil prices may limit the attractions of renewable energy and the speed of transition to a low-carbon world. But the direction of travel is clear. The short-term challenges sparked by the pandemic may be a chance to allocate more to clean energy assets and diversify portfolio assets.
Jean-Damien Marie and Andre Portelli
Co-heads of investment, Private Bank
Economy suffering coronavirus growth shock
As the medical and economic effects of the coronavirus pandemic spread, the chances of a recession worsen. But which countries and sectors might be worst hit? While output should recover in the latter half of the year, as the number of new cases recedes, we forecast growth of only 0.4%. But, are prospects brighter for 2021?
Post Covid-19, what could 2021 earnings look like?
Equities have plunged around 30% since their recent peak as forward earnings and growth forecasts are cut. Timing the rebound, and its magnitude, may be crucial. How can investors position their portfolios to best capture the recovery in valuations?
The Covid-19 outbreak and default rates
The Covid-19 pandemic has seen unprecedented monetary and fiscal responses and issuer default risk is climbing. With the crisis seemingly far from over, finding the sectors and countries most exposed to its effects appears crucial. What can investors do to manage risk and opportunities in fixed income?
Private markets: calm in a crisis?
With financial markets selling off as the potential economic effects of the Covid-19 pandemic become more transparent, might it be time to diversify into private assets? Data shows that the latter tends to outperform public markets in times of crisis. So what private market assets might be worth considering?
Alternatives: oil and gold market hits turbulence
An oil price war and the Covid-19 outbreak is increasing pressure on producers and shows little sign of improving. When might the market rebalance and the price recover? Gold has also suffered as investors flee financial markets in a flight to liquidity. What next for the precious metal?
Are renewables still attractive with lower oil prices?
The plunge in the oil price may check the enthusiasm for transitioning to a low-carbon world. But the trend to renewable energy seems more than a passing fad. It is driven by environmental and economical factors. The current financial market malaise may be a good opportunity to invest in renewable assets at attractive valuations, while diversifying portfolios.
Maintaining your composure
Coverage of the Covid-19 pandemic and resulting sharp falls in financial markets can hardly be missed by investors. Many may be inclined to sell assets and sleep easier. Such an emotional, knee-jerk, response could be a bad move. With large swings in markets and the pandemic seemingly here for some time, what can investors do to calm their nerves?
Multi-asset portfolio allocation
The economic cycle seems far from over, with attention focused on the potential effects of the coronavirus on growth and central bank policy. In fixed income, we favour emerging market bonds as a way to boost returns late in the cycle. Similarly, earnings expansion and dovish policy should underpin developed market equities. We are cautious on high yield bond prospects.
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