Aegon AM: Global Investment Update on the Coronavirus

Aegon AM: Global Investment Update on the Coronavirus

6 maart 2020

Vooruitzichten
Corona-virus (01)

In a recent publication Aegon Asset Management discusses the coronavirus and its impact. As the virus spreads throughout the global population, it is also infecting global asset markets. Risk assets have seen a significant correction, with both US and European stocks dropping more than 10% in less than two weeks. Last week alone it erased US$6 trillion in equity market cap, while the defensive bid has pushed long-end US Treasury yields to all-time lows. When analyzing the effect of exogenous macro shocks like this, it is imperative to focus on two key elements: 1) the environment at the starting point and 2) the magnitude of the impact of said event.

RATES

We are starting to see a response from monetary and fiscal authorities to avoid a further deterioration of the economic outlook.

CREDIT

The uncertainty associated with the virus has sidelined the US primary market, and pushed spreads in the secondary market significantly wider.

HIGH YIELD

US high yield was hardly immune from the broader risk-off move. After holding in early on, fears about the lingering effects of the coronavirus and its ultimate influence on economic disruption lead to bond prices moving aggressively lower by the end of last week.

STRUCTURED

We continue to expect securitized to outperform other asset classes during periods of increased volatility as well as through the next downturn given the underlying fundamentals and strong deal structures.

EMERGING MARKETS

We have three main views which we believe are worth watching that emanate from the coronavirus: direct linkage through trade, the impact to commodity prices, and the threat of general aversion to riskier assets.

EQUITIES

Central bank stimulus will continue to support equity markets, but we might see a further drop in coming weeks if the news on the virus worsens and investors panic.

Once the coronavirus is under control, Aegon Asset Management says we may see a significant rebound in economic activity. It will take time for monetary and fiscal policies to add to growth, but once it does, we contend that it will strengthen the economic rebound further.

Ironically, the dissipating effect of the virus in combination with such measures might result in a global economic growth level higher than before we were hit with the coronavirus.

We may even see a classic V-shaped recovery of the world economy after a short period of depressed economic numbers. In the meantime, volatility will remain elevated on financial markets as investors respond to the virus headlines.

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