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Economic rebound after the heart attack

We have asked opinion leaders of Julius Baer how they see the second quarter of 2020 and where investors can find the best opportunities in the current environment.




After a growth shock in the first half of 2020, we expect the economy to gain traction again, driven by specific sectors. A lavish monetary and fiscal policy should support the acceleration of growth. The main uncertainty currently revolves around how long and how widespread the abrupt halt in economic activity will be until the recovery starts. That said, the rise in unemployment will result in some consumption restraint and caps the economic recovery potential.

Waiting for stabilisation

“The virus shock most likely ended the current cycle. Yet major concerted stimuli, both from central banks and governments, should avoid the economic fallout of the crisis turning into a global depression. Financial markets have priced in a recession, by and large, at the end of Q1 2020. A new cycle will start in the wake of this period of stabilisation. Timing the low in economic activity and the subsequent rebound is clearly outside the scope of any economic analysis.”

Supportive governments and central banks

“Policymakers around the world are now taking action to combat the recession. Governments and central banks have already announced massive support measures to help cushion the blow from the virus. We are convinced that central banks will use all their available policy options to limit the economic fallout. As monetary easing cannot do it alone, coordinated action with more expansionary fiscal policies is crucial to avoid a global depression.”

Economic uncertainty

“The increasingly harsh containment measures to slow the spreading of the virus, implemented in more and more economies, are stifling consumer and investor demand. The main uncertainty currently revolves around how long and how widespread the abrupt halt in economic activity will be and how much damage will be caused by the stoppage.”

Flight to safety

“The coronavirus has turned the ‘hunt for yield’ into a ‘flight to safety’ with government bond yields plunging to unseen lows. The more credible the policy response to the crisis is, the faster will we return to the era of financial repression which is supportive for the riskier segments of the bond market.”

Attractive entry-points

“Historically, all major virus outbreaks that resulted in tangible equity market corrections have been attractive entry-points for long-term investors. As of today, we think that the economic shortfall related to the coronavirus could be a buying opportunity for investors with an investment horizon beyond six months.”

No change in market leadership

“Talking about sectors, I see no change in sight in terms of market leadership. Cyclical stocks remain our focus – especially industrials and information technology (IT). Undoubtedly, the sharp equity market correction in response to the coronavirus has negatively impacted cyclical equities. However, information technology stocks have been the key driver of the equity bull market, and sector leadership does not usually change quickly. It’s important to note that we expect the economy to rebound in the second half of 2020.”

Chinese equities are a core holding

“We stick to our medium-term favourable backdrop for Chinese equities. Chinese policymakers continue to support the economy and private consumption with strong easing measures. Since the coronavirus outbreak, numerous easing measures have been announced, ranging from liquidity injections to credit support and tax relief. After investing a lot into physical infrastructure over the last years, the Chinese Politburo has now announced the build-out of new economy infrastructure as data centres, artificial intelligence or the ‘internet of things’. We think that Chinese equities should be a core holding in an investor’s portfolio.“

Healthcare – a field of innovation

“The Healthcare sector is well positioned to profit in the current environment, as it has less sensitivity to the economic cycle. The tragic coronavirus epidemic is also a reminder of the merits of holding a strategic exposure to biotech companies, as this disruptive technology is one of the fastest innovation fields globally. During previous US presidential election campaigns, healthcare stock price weakness often represented a buying opportunity.“

Exogenous shock

“The rapid spread of the coronavirus and the corresponding quarantine measures turned out to be a huge exogenous shock and represent a significant risk for earnings growth over the coming months. In our base scenario, we do not see broad-based bankruptcies but sector-specific stress. The situation is exacerbated by other factors of insecurity, such as the oil politics dispute between Russia and Saudi Arabia and the outcome of the US presidential elections.”

Recession ahead

“The window of opportunity for the timely and successful containment of a recession has narrowed sharply, as the recent large liquidity injection of central banks will not suffice to compensate for the short-term – but eventually widespread – demand loss. As the massively necessary fiscal stimuli take time to materialise, our recession scenario will become reality.”