COVID-19: An unprecedented event - J.P. Morgan Asset Management
CLOSE

COVID-19: An unprecedented event

Contributor Karen Ward


Chief Market Strategist for EMEA gives an update on how COVID-19 is impacting financial markets.

The spread of the COVID-19 virus is causing considerable volatility across financial markets. The social distancing policies that are required to contain the disease have catastrophic short-term economic effects and at this stage it is difficult to confidently say how long the economic disruption will last.


Investors are looking to countries like China and South Korea, to try and inform their forecasts. The pandemic began in China and quickly spread to its neighbours like South Korea. Authorities clamped down abruptly on travel and movement and as the data are now coming through the economic consequences of those actions are becoming clear. However so far the restrictions appear to be having the desired effect and infection rates have fallen. What we are yet to see is whether the infection rate reaccelerates when activity and movement restarts.

In Europe and the US we are at the earlier stage of the journey. Infection rates are still accelerating and the social distancing and economic consequences are still in large part to come. So we should brace ourselves for a slew of truly horrific economic data in the coming months.

The important question is how quickly economies can bounce back

Karen Ward

 

But the market will not be surprised to see bad data in the coming weeks. Indeed a shockingly bad second quarter is most likely in the price. This has been the most rapid equity repricing we have ever seen, even more so than the October flash crash. In the 2008 recession is took almost 260 days for the S&P 50O index to be down 30%, this time it took just 20 days.


How quickly might the economy and markets recover? This depends on how long it takes for the disease to be contained which is hard to predict. However, what we can analyse is whether policymakers are putting in place the right supports to be sure the economy can bounce back once we are all again allowed to go out.

In this regard there are positive things to say. We will do ‘whatever it takes’ is the key strapline for policy coming from governments and central banks globally. Governments and central banks are flooding the system with liquidity but more importantly governments are realising that loans are not the solution, and instead companies and households need direct subsidies. Of course these large fiscal packages will require lots of government debt. This is where the central banks come in. By restarting their Quantitative Easing programmes they can absorb that debt ensuring government bond yields remain low.

In summary it is too early to assess the ultimate impact of the coronavirus on economic activity and corporate earnings. The sooner the virus is confidently contained, the quicker the recovery in economic activity will be, particularly given governments and central banks are acting decisively to shore up the economy and support the prospects for recovery. However, the longer the period of reduced travel to restrict the transfer of the infection, the greater will be the impact on corporate earnings.

Investing through volatile times

The clear investment implication is that, even more than usual, a well-diversified portfolio is essential. This includes diversification by region but also by asset class. Core government bonds have performed strongly. However, further upside for US Treasuries and UK gilts will be more limited from here unless these central banks shift their guidance that they do not intend to take interest rates into negative territory. Investors may wish to consider alternative diversifiers such real assets if liquidity is truly not a requirement.

Sticking to core investing principles is essential. Don’t let emotion dictate decisions, as all too often that leads investors to sell equities and other risky assets near the bottom of the market. And retain a focus on the long-term objectives.

SIGN UP TO RECEIVE INSIGHTS BY EMAIL

This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. Investment is subject to documentation. The Investor Disclosure Document, Key Features and Terms and Conditions and Key Information Document can be obtained free of charge from JPMorgan Funds Limited or www.jpmam.co.uk/investmenttrust. This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP. Material ID: 0903c02a82857c2d