A particularly incisive commentary comes from David Amaryan who is CEO of , a Moscow-based emerging markets investment manager specialising in long/short event-driven and value strategies. Amaryan has worked in the space for two decades in various international financial institutions in Moscow and New York. He founded Balchug in 2010. The editors are pleased to share these views; the usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

To put it mildly, the last few months have been stressful. A dangerous, unfamiliar virus brought human misery and economic catastrophe around the world with stunning speed, forcing governments and businesses to struggle with a growing toll of infections and death, closed borders, soaring unemployment, declining production, wild market fluctuations, negative oil prices and trillions of dollars in fiscal and monetary stimulus. Only a vaccine will end this nightmare, but even so, news outlets and analysts across the world are grimly predicting a “new normal” in which things will never be the same.

Making investment decisions in this turbulent environment can be challenging. When things get too complicated to comprehend, with too many variables, I try to simplify them by asking basic, straightforward questions. This is what we did at Balchug Capital in March 2020.

Is this the end of the world? 
No. This is not a massive meteor heading toward our planet. It is not a nuclear world war. People are not turning into zombies. Humanity has survived and overcome two world wars, the Great Depression, the great financial crisis, the Cold War, various epidemics and pandemics and numerous recessions. We will adapt and move on from the novel coronavirus, too. 

Do we believe there will be a vaccine within a reasonable time?
Yes. Though we are not doctors, we are confident that the sophisticated capabilities of our scientific community, backed by government and private capital, will produce a vaccine, and that COVID-19 will be treated and controlled as other viruses in the flu family are. Already, there are around 100 possible vaccines being developed. We have faith that one or more will soon be successful. 

Will there be a second pandemic wave?
Most likely, yes. As economies reopen, social proximity will return, people will inevitably let their guard down, and conditions will be ripe for a resurgence in the fall.  However, even if there is yet no vaccine, many people will have developed antibodies, and most countries will be much better prepared this time. I would not expect the same widespread economic shutdown again. Another overreaction in the markets is possible, however, which could be a buying opportunity.

Will oil prices stay below $20?
No. As economies reopen, people start driving and flying, and factories and farms step up production, demand will gradually recover. Combined with action from OPEC+, oil prices will probably return to the $35-$45 range.

Do we expect a V-shaped recovery?
Most likely, no. Economies will not go back up nearly as fast as they went down, and there will be continued volatility in the markets for the near term. But as uncertainties decrease, the virus is controlled and public confidence returns, the pace will pick up.

Should we worry about all the debt that is being created?
Not in the short-term. A massive crisis requires a proportionate response. While there is legitimate concern about heaping enormous debt on the next generation, context is important. The difference between a FED balance sheet of $1 trillion versus $2 trillion is not as important as leaving the next generation a functioning economy that can handle the debt. Right now, more fiscal and monetary support helps the economy recover. Yes, there will be a price to pay in the future, but it might not be as high as we think, and without it our legacy to the future will be ruin. As a not so incidental aside, I think climate change, not debt, should be a much bigger worry for the future.

Can anyone reliably forecast the future and market behaviour? 
No. I never met anyone who could do that before COVID-19, and I haven’t since. I prefer to ignore the forecasters and soothsayers and focus on what we know and have today.

We concluded that this pandemic would not change individual lives as much as feared, although there will surely be geopolitical shifts. The continued move towards a less globalised and multipolar world may affect the world’s future economic growth. But when things normalise, we will pick up the pace at work, send our children back to school, eat at restaurants, fly to vacations, stay at hotels and drive our cars to shopping malls. To be sure, we will be more careful, but we will come back.

At Balchug Capital, we assigned probabilities to various scenarios and started looking for investments in companies that were seriously oversold but had strong balance sheets and cash to survive a prolonged period of serious distress. We especially favoured those that could benefit from the reopening of the economy and the recovery of the oil prices and avoided overcrowded and high valuation sectors such as technology. We looked at companies that we liked before the pandemic and that are now trading at a 40 per cent to 60 per cent discount, such as Devon Energy, Tatneft, Rosseti, Schlumberger, SSR Mining, Jet Blue, and Discovery Financial.

We think medium-term equities have a lot more room to grow. Most of the big money is still on the sidelines and out of equities. Equity allocation is at historical lows. Low risk investments will not offer sufficient returns even for most risk-averse investors, and a great majority of them will turn to equities for satisfactory returns. Risk is on and it will be on for the foreseeable future. 

Of course, even the most carefully laid plans can be upended by events, such as a wider than expected second wave of the virus, US domestic turmoil and disruptions in international relations, especially with China. So, we assume prolonged market volatility. We know there are risks. But as fund managers, our job is to make money for our clients. As bad as the pandemic has been, it presented us with an opportunity not only to strengthen our portfolio but, more importantly, to show confidence in the future by literally putting our money now in companies we think will come out strong on the other side of the pandemic.