It's Too Early To Throw Off Investment Caution - LGIM

Tom Burroughes

10 June 2020

Stock markets have recovered from their March lows but the state of the underlying economy should make investors cautious, and they should not expect a “V-shaped” recovery once COVID-19 lockdowns are lifted, could lead to more economic restrictions to movement and activity and hamper GDP growth,” he said.

Teschmacher does not think that the equity market lows of March will be revisited, and would require new negative news such as a deterioration of US/China relations or a virus mutation.

Scenarios
In trying to think how best to position investments, Teschmacher has three scenarios in mind: i) strong economic rebound and no major second outbreak of COVID-19; ii) some recovery but with some “scarring” to the underlying economy, high unemployment and tighter credit conditions; and iii) a persistent slump.

Even before the COVID-19 crisis, Teschmacher said that the equity market bull run which had started about a decade ago was looking ragged. The markets were already “late cycle” last year.

“At the margins we started already to cut back on some equity risk, and we also downgraded on some corporate credit over the last few years,” he said.

The US/China trade frictions are bound to become hotter as the US presidential elections draw closer, he added.