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Lessons learnt from the pandemic

What were the biggest financial stories that came out of the pandemic? How should investors approach ESG? And what has our CIO been reading? Moderator Hannah Wise went on a walk with Yves Bonzon to find out the lessons learnt.




Shortly before the 2008 financial crisis, you pulled out of equities. Surely, you could not have seen the coronavirus pandemic on the horizon? 
Yves Bonzon: “That’s correct. I would describe the 2008 crisis as an endogenous mechanism. It was a mechanism that had drivers, that you could track, monitor, understand. We were able to understand the kind of policy response that needed to be implemented to stem the contagion effect in the system.

The pandemic was of a very different nature. The economic system at the time was very solid and stable. The world economy and financial markets were hit by something that some have compared to a natural catastrophe. By definition, you cannot predict earthquakes reliably. You know they can happen, but it’s the strategic structure of your portfolio that protects you against these unpredictable events.

I think the pandemic's biggest story is all about acceleration.

How do you respond when they happen after all? And what have we observed last year? Although we did not predict the pandemic, we navigated it very well and, to a certain extent, took advantage of opportunities in market. Why? Because we understood what was needed from governments to stabilise the economy and shield the private sector from permanent losses, including the negative wealth effect of falling asset prices.

The policy response has been amazingly rapid. In the 1930s, during the Great Depression in America, it took a few years for the government to develop the correct policy response, including debasing the dollar against gold. In 2008, it took approximately a year and a half until we got the right policy responses from Washington. Last year it took three weeks. It’s a tremendous progress.”

What was the biggest financial story to come out of the pandemic?
“I think the pandemic’s biggest story is all about acceleration. The digitalisation of the economy was accelerated. Furthermore, the transition towards a new approach to macroeconomic policymaking, including the use of fiscal deficits, was accelerated rapidly.”

The combination of the technological uncertainty plus the regulatory unknown make the future of crypto extremely hard to predict.

Right in the middle of the pandemic cryptocurrencies were hitting their all-time highs. The topic was all over the news. What does it mean for the financial industry?
“There is a lot to say about crypto. In fact, I don’t like to call them cryptocurrencies, because I think essentially they are crypto assets of various kinds. Some are currencies, including the stable coins, some are assets of the equity kind, some are assets of the fixed income kind, some are hybrids of all of this. I think it’s a disservice to the case for crypto to call them currencies.

Having clarified this, I think the impact is very difficult to grasp for the following two reasons: There is a technological issue and we know that cryptocurrencies can have dramatic disruptive consequences for the centralised financial system. However, all of this is a function not just of technology, but of what governments will allow, how regulations will evolve. The combination of the technological uncertainty plus the regulatory unknown make the future of crypto extremely hard to predict.”

One aspect closely related to crypto is in the environment. Bitcoin prices dropped as soon as Elon Musk said he wasn’t interested anymore because of the environmental impact. But when we think back to the pandemic, everybody has been talking about sustainability and the environment. How important is ESG for investors going forward?
“I think ESG, unfortunately, has in some instances been leveraged for storytelling and commercial purposes. However, ESG is a topic of utmost importance. The industry has realised n that we should not just talk about this subject, but we should be very concrete. We have coined in the Sustainability Board at Julius Baer: We want to do good, we don’t want to feel good.

Whether it's the climate, social responsibility, inequality... There are so many areas in which you can have an impact.

Investors should look for how their adviser approaches ESG and ask themselves “What matters to me?” Finance cannot solve all of the problems of the world. But at least the industry is trying to move into the right direction. Whether it’s the climate, social responsibility, inequality... There are so many areas in which you can have an impact. It’s fascinating, but you want to do it out of the true conviction that your investments can spark positive change.”

Last but not least: What were your big reads of the pandemic? Which books do you recommend?
“I’ve read ‘Artificial Intelligence and Superpowers’ by Kai-Fu Lee, discussing the difference between Silicon Valley and China. The book is interesting in the wake of the regulatory crackdown on digital business models and data collection that has recently happened in China. Compared to when the book was written, it’s a potential significant game changer for China and Chinese assets.

Currently, I am reading ‘Noise’ from Kahneman. I believe ‘Thinking, Fast and Slow’ is a must-read for everyone investing money in order to understand how we react to news. In ‘Noise’, the discussion is about distinguishing the noise from what really matters and understanding that our decisions can be polluted by noise.”

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