Equity strategy and market outlook – April 2020

In this month’s strategy piece, Alastair believes that as developed nations are relaxing lockdowns and looking to restart the global economy, diabolical flash PMI data for April may represent the trough in economic sentiment for the very short term. Nevertheless, at least until the end of 2020 national economies will have to contend with the prospect of social distancing measures and the risk of a second wave of infections. In coming weeks investors are likely to welcome the flow of company news releases announcing the restart of operations, as supply chains are restored. However, the travel and leisure sectors will face the heaviest burden from continued social distancing. The challenge for governments will therefore be how to implement a progressive rollback of lockdowns while maintaining sufficient consumer demand to incentivise business to keep people on the payroll and continue investing wherever possible. We expect a surge in unemployment once government furlough schemes end. COVID-19 may also re-open the EU’s north/south divide. Existing fragilities will be emphasised in nations with higher debt/GDP and higher exposure to tourism and leisure. For the longer term, the trend to conducting business digitally is likely to accelerate. Equity market valuations are no longer highly discounted. We remain neutral on the outlook for global equities at this time as we believe lower valuations, compared to pre-COVID-19, are now balanced by the outstanding economic risks and uncertainties.

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