An international asset manager has suggested the global economy is currently insulated from the worst financial effects of the COVID-19 crisis, with the real pain potentially to come as governments reach the end of their fiscal stimulus.
Speaking at a virtual adviser event on Tuesday, Fidelity global equities portfolio manager Amit Lodha said the fund manager believed financial markets were yet to enter the longer-term recession that was likely to occur after the immediate impacts of the COVID crisis had been dealt with.
“We’ve thought about the current market as in the virus phase, then there is the recession phase and the recovery that follows the recession,” Mr Lodha said.
“Stimulus programs the likes of the US CARES Act and JobSeeker Act are what I would categorise as war programs, and recessions usually happen after the war. [Two-thirds] of people on the US CARES Act are making more money now than when they were in a job, so the real test phase will happen after these measures are put away.”
Mr Lodha said the asset manager was hoping for a short recession period, but bracing for a sustained effect on markets, with around 40 per cent of the Fidelity global equities portfolio weighted towards providers of essential goods such as grocery companies that were essentially recession-proof.
He added that the measures governments would have to take to deal with the coming economic slump would likely change the dynamics of markets and bring the ethical implications of investments to the fore.
“Inequality will be an important issue and will push governments to focus on ESG,” he said.
“Austerity and balanced budgets are out the window, which also creates some implications for value versus growth [stocks] and inflation versus deflation. Essentially, it’s unlikely that the winners of the last few years will be the winners of the next few.”
Thinking about a longer-term economic recovery, Mr Lodha said Fidelity’s focus was on stocks with a firm technology focus.
“When you look at the portfolio companies, we have the obvious technology winners in there, but also companies that are amazing users of technology,” he said.
“If you look at Zoom, it is now the standard of how we interact with the world – just as email destroyed the postman’s business, it’s likely Zoom will have a significant impact on business travel, and companies like Qantas and British Airways, for a long time to come.
“Or something like [Indian bank] Kotak, it is an EM bank but it uses technology better than everyone else to grow its deposit business.”
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