Review & Outlook
October 2020
In spring, the coronavirus pandemic brought global economic activity to a virtual standstill. The economy has recovered a little since then, but is of course still well below the level we were used to before the pandemic.
China, which was the first country to enter total lockdown at the beginning of the year, seems to have brought the virus under control and its economy has returned to growth. In the rest of the world, however – and particularly in Europe and the US – the recovery is taking much longer than expected. The original hope for a rapid vaccine that would end the pandemic as early as the autumn proved to be overoptimistic. The situation is now further aggravated by signs of a second Covid wave that is likely to lead to further (at least partial) lockdowns in many areas.
In the year to date, governments and central banks have pumped unprecedented amounts of money into the markets, which has benefited the economy in the form of unemployment benefits and emergency loans. Financial markets have responded very positively to these stimuli from governments. A closer look at stock market performance since the massive correction in March might lead to the mistaken conclusion that there had only been a minor outbreak of “flu” and everything is now back to normal.
In fact, the “real” situation looks completely different. Most companies have so far benefited from short-time work and corresponding state support. In the hope that the crisis is only temporary, many companies have so far taken a wait-and-see approach and opted for short-time work. However, the gloomy economic outlook that is now emerging across many sectors, even over a longer time frame, has led to more redundancies (such as in the airline Swiss). Many SMEs face exactly the same problem, but receive much less press coverage.
America’s handling of the coronavirus crisis has been chaotic so far. The presidential elections at the start of November complicate the situation even further. Another urgently needed economic stimulus package has so far been blocked by electoral squabbling between the two governing parties and recently President Trump even postponed it until after the elections. Even if the polls are currently swinging clearly in favour of Biden and the Democrats, the new president will not be elected until all votes have been counted.
Stock market volatility has increased significantly since mid-August and nervousness is likely to continue until after the US elections in November.
The concerns we voiced in the summer about the level of global indebtedness have increased. All the world’s central banks are frantically printing money and pumping it into financial markets. At the same time, they are promising to keep interest rates at the current rock-bottom level of almost zero percent for years to come. In the long term, this is bound to lead to rising inflation and currency depreciation.
Although we expect the economy to achieve a full recovery over the course of the years, the preferred sector mix will change significantly. Our strategy therefore continues to be based on a well-diversified portfolio of shares with forward-looking investment themes and attractive dividend payments.
In view of the currency and debt problems mentioned previously, we still expect a positive performance from our precious metal investments over the short term. In addition, buying put options on stock indices provides a hedge against future market corrections.
The market situation is still quite unpredictable, but we are well prepared and look forward to dealing with the daily challenges.
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