Coronavirus pandemic shifting investment markets

The pandemic has had quite a profound impact on investment markets, which can be seen at a number of levels, according to Kevin Quinn, chief investment strategist at Bank of Ireland.

Markets bounce back

“Firstly in terms of the overall market returns, the simple statistic is that markets have largely recovered everything that was lost in the very rapid downturn that occurred in February and March. With massive policy response came a re-rating of risk assets to a point now where the one year return numbers for investors look ‘normal’,” he says.

Differences emerge

There is a lot more to it when you look below the headline indices, however. "The big winners this year have been the IT and consumer discretionary stocks, think Apple, Amazon, Zoom, Tesla and these are the types of stocks that have generated some exceptional gains for investors this year. The IT sector globally has made gains in excess of 20 per cent And then look at the financials and the energy stocks and you'll see sectors that have languished with financials down 20 per cent and energy down over 35 per cent."

It is hard to argue against risk assets in the year ahead, even if we can expect volatility from the likes of Covd-19

This can also been seen at a geographic level with much stronger performance from the US, which is up circa 3 per cent year to date (YTD), versus Europe and the UK which are down -12 per cent and -24 per cent YTD respectively.

That will feed into how investment managers will adjust to the future. “As long as rates remain low and central banks support markets with an expansionary monetary policy it is hard to argue against risk assets in the year ahead, even if we can expect volatility from the likes of Covd-19 second waves, the US election and even Brexit,” he says.

“That said, finding the winners in the year ahead may see some look at the areas that have yet to recover rather than the more fully priced sectors.”

Industries shift gears

The Covid-19 crisis has accelerated change across entire industries.

"Digital winners are gaining at the expense of those who were already being left behind. Climate change is driving European leaders to work together and invest in a whole new energy supply chain for Europe which will lead to a decade of investments into the decarbonisation of the continent. It is also forcing investors to be accountable if they continue to be involved in unsustainable activities such as fossil fuel production," says Phil Byrne, deputy chief investment officer, Merrion Investment Managers, Cantor Fitzgerald Ireland.

To make up for the potential loss of activity, China is stimulating its economy in a more traditional manner

“Anti-globalisation is driving a focus on returning production closer to home which can only be fulfilled in automated, digital factories. To make up for the potential loss of activity, China is stimulating its economy in a more traditional manner, driving up the price of commodities globally as it looks to build out its infrastructure once again. Brexit is leading to a more isolated Britain but a more united Europe,” he says.

“All those issues have thrown up both challenges and opportunities, which, as an active manager, we thrive on.”

Policymakers row in

The pandemic has also kick-started global policymakers – both fiscal and monetary – into enacting the most pro cyclical measures since probably just after the second World War.

“This is a crucial point that seems not to be given the attention it deserves as it should lead to a profoundly positive backdrop for the right investments,” he says.

Advisers prove their mettle

The pandemic has also provided investors with a sound way to assess the value of their financial specialists. “Events like this are a very good test from the investor’s perspective of their investment adviser as to whether or not they are actually providing any value,” says Daniel Moroney of Brewin Dolphin.

“Advisers earn their stripes at times when it is difficult to do nothing and invariably the thing to do in the short term is nothing. If people can get on the phone and find a reassuring voice to talk to, it is much easier to stick with that than it is for someone who has no one to turn to. That is why it is the latter who are far more likely to miss out on the recovery, and it’s often why private investors don’t earn the returns they should.”