Equity strategy and market outlook – May 2020

In this month’s strategy piece, Alastair believes that the biggest recession since the Great Depression lies ahead. Developed markets are now forecast to achieve near-zero GDP growth for the period 2018–2021. Following the sharp declines in 2020, we believe it will be a slow walk back to trend GDP. Furthermore, the risk of a second wave of COVID-19 infections remains in place. Based on actual testing in the worst-hit areas of Italy, less than 10% of the population have been exposed to the virus. Central bank action has mitigated the impact of lockdowns on markets, but investors need to be clear on whether the market rebound is driven by easing liquidity fears or any improvement in the fundamentals. We argue it is the former rather than the latter. We remain cautious on equity markets as valuations for the largest global equities have returned to normal while the economic situation remains anomalous.

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