Global CIO Video: "We have clearly moved into a new world"
Only a few weeks ago, global equity markets were at fresh all-time highs. How rapidly things have changed. The global spread of the novel coronavirus and the impact of governments' dramatic containment measures have caused great concern, as global growth is hit. In the new Global CIO video, we look at the latest developments and our current views.
We have clearly moved into an entirely new world. Investors are fleeing risky assets, seeking shelter in safe-haven investments like government bonds. Oil, already under pressure in light of the growth setback, additionally fell victim to the inability of the major oil-producing nations to agree on additional supply cuts.
In the Investment Committee, we believe it is too early to broadly re-enter the equity market. Markets remain highly volatile and investors would be ill-advised to time the market. This is why we consider it prudent to stay neutral equities until confidence is restored and fundamentals, which continue to speak in favor of equities, return to the fore.
Even though government bond yields have declined further amid safe-haven buying, we believe that they will reverse course once containment measures and economic policy responses are successful. Thus, we retain our negative stance on government bonds. Our view on commodities also remains in place: we maintain an overweight position in the overall commodity index, which also includes precious metals that help to diversify virus-related risk.
A time for patience and action
It goes without saying that the coronavirus outbreak presents a risk that is very difficult to gauge and whose development is impossible to predict. However, fear is not a good investment advisor. Indeed, a robust investment strategy based on a foundation of strong principles is more important than ever in times like these. Diversification is the most important principle in managing money. The outbreak is not the first storm, nor will it be the last, but it will pass like every storm.
What we need now is decisive and credible policy action and communication on the part of governments. Unlike 2008, when the financial system arguably sleepwalked into a crisis, the financial system is robust this time around, banks are much better capitalized, risks are lower and central banks know what to do.