The spread of the coronavirus and its impact on global economic activity has materially changed the investment outlook for 2020. Trying to predict the precise outcome for the global economy is a fool’s errand. Instead, in this piece we provide a framework for tracking infection rates globally and monitoring the impact on economic activity, using high frequency or daily data. We consider how government and central bank interventions might support the households and firms affected and facilitate an economic recovery, and then review the market reaction to date.

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 as macro funds, or real assets if liquidity is not a requirement.

What are the latest virus statistics?

Exhibits 1-3 provide the latest data on the spread of the coronavirus. China and South Korea have made substantial progress in controlling new infections, following the significant restrictions on activity. Whether a loosening of lockdown measures leads to a resurgence is yet to be seen. Of clear concern is the speed with which infections have increased outside of Asia, with the number of cases in the US, Italy and Spain now having overtaken those in China.

 

EXHIBIT 1:COVID-19 Daily increase in confirmed cases

Five-day moving average

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Chart source: Johns Hopkins CSSE, J.P. Morgan Asset Management. Data as of 2 April 2020.

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