Investment Views

01.04.2020
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April 2020

Here we summarise our Investment Committee's immediate outlook for the primary asset classes and major equity markets.

Investment Views for Apr 2020

  • Positive
  • Neutral
  • Negative
Asset Class Current View Outlook
Equities

Since the third week of March, global equity markets have bounced back, largely in response to the unprecedented levels of support from central banks and national governments as they seek to help households and businesses make it through the coronavirus crisis. Provided that the virus is contained, in most major economies there could be a continued steady improvement through the rest of this year, although it is unlikely that all of the lost ground will be made up by the end of 2020. Despite this, we remain negative on equities because of the significant risks present; we expect the economic data in Q2 to be truly awful, and it is still unclear the extent of any lasting damage caused to the global economy. We also expect any easing of the current restrictions on movement to be gradual, and this will contribute to what we anticipate will be weak levels of demand; this means that economic growth will likely take a long time to return to its pre-virus level. Given these uncertainties we do not favour any particular region and retain our residual exposure predominantly in the markets of developed economies.

Fixed Interest

Central banks have reduced interest rates and massively increased their bond purchase programmes through QE (quantitative easing) to provide market liquidity as companies endeavour to weather the current crisis. QE includes the purchase of government bonds as well as bonds from the wider debt market. Normally, only investment grade companies are included, but the US Federal Reserve has also provided a package of support for the more distressed parts of the bond market, including purchasing high yield Exchange Traded Funds. Optimism over a rapid economic recovery seems misplaced and this should lend support for government bonds as a safe haven, especially in the short term and given the current backing of the central banks. However, down the line the funding for all of the national government measures announced will become an issue. In these uncertain markets thorough analysis is required, especially if drifting too far away from the levers of current government support.

Property

The containment measures put in force to halt the spread of Covid-19 are likely to cause investment activity in the UK commercial property sector to fall to very low levels in Q2. Rents are expected to decline, with the retail sector seeing the steepest falls and the industrial sector being relatively resilient. Such is the likely damage to the economy that property values could fall in 2020. European commercial property is also expected to have a challenging year as the region’s economic activity is hit. Rents in the retail sector are expected to fall although rental growth could recover if the virus is brought under control soon. Prime office and the industrial sectors should prove more resilient.

Alternatives

Industrial commodities – demand has suffered in line with the downturn in global economic activity. Supply disruptions together with a sustained recovery in China’s economy will give support to prices.

Oil – despite the significant supply cuts agreed by Opec+, the slump in demand caused by the fall in global economic activity means that the oil market will remain oversupplied in 2020. This will effectively cap any rise in prices.

Gold – the currency’s safe haven characteristics are likely to lead to further prices rises, although periods of demand for the liquidity of US dollars could create some price volatility.

Absolute return – offers the potential to dampen volatility and provide some downside protection, but returns are often moderate at best.

Cash

With UK interest rates at such low levels for the foreseeable future, the expected return is pitiful. However, cash can be a useful ‘shock absorber’ in volatile markets and remains a truly liquid asset.

Equity Region Current View Outlook
UK

See above comments in section denoted ‘Equities’

US

See above comments in section denoted ‘Equities’

Europe

See above comments in section denoted ‘Equities’

Japan

See above comments in section denoted ‘Equities’

Asia Pacific and Emerging Markets

See above comments in section denoted ‘Equities’

Risk warning: Investors should be aware that past performance of investments is not a reliable indicator of future results and that the price of shares and other investments, and the income derived from them may fall as well as rise. The content of this bulletin is for general information and reflects the general market view of Parallel Investment Management Ltd. - it should not be interpreted as recommendations or advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of the content.

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