Investment - Articles - COVID19 and what exactly is going viral


According to global asset manager Columbia Threadneedle Investments, investors should not flee into cash before interest rates slump as a result of the coronavirus. "I wouldn't recommend going into cash," says Colin Moore, Global Chief Investment Officer at Columbia Threadneedle. "Interest rates are very low, and if there is a monetary policy response to the current situation, they are going to fall even further."

 Instead, investors should ask themselves whether they consider the situation to be a structural phenomenon or a temporary one. "I strongly believe it's not structural," says Moore. “So we should be getting to a point where markets have been overreacting, because of their extrapolation of a temporary phenomenon into a permanent one."

 He continues: “The situation is quite serious, of course, and we should not forget the considerable human cost – not just those affected by the virus itself or their families, but the angst that is being shown by the broader population. And that's where it begins to affect markets because that affects economics.”

 According to Columbia Threadneedle, there are short-term risks mainly relating to the liquidity of individuals and of some companies. If activity comes to a standstill – ie, people no longer go to work or companies no longer sell any goods and services – cash flow dries up. At the same time, expenses and liabilities remain. “Investors who don't have sufficient liquidity tend to sell what they can - not what they should,” says Moore. “Then what you get is mis-pricing of risks and opportunities in the marketplace.”

 Columbia Threadneedle therefore expects monetary policy to play a minor role in addressing the consequences of coronavirus. Moore says: “The focus should be on providing liquidity rather than the cost of money. Obviously the two are related, but liquidity as an instrument offers more policy options than leading with rates. Lower interest rates alone may stabilise market sentiment but will have limited impact on consumer and business confidence if it is the only response.”

 According to Moore, the market goes through phases of denial, acceptance and then exaggeration. It seems to him that the market is moving towards the latter. “Trading volumes have increased significantly, which means some securities are currently undervalued."

 The risk of a recession has increased as a result of the short-term economic impacts of the coronavirus fears. "But the duration and depth of a recession, if it occurs, is likely to be quite short, with the exception of the most affected countries such as China." According to Moore the duration of the recovery will vary from industry to industry. "It will probably take a lot longer for tourism to pick up than visits to the local grocery store " he says.
  

Back to Index


Similar News to this Story

John Lewis Trust for Pensions appoints new trustee chair
The John Lewis Partnership Trust for Pensions has appointed Sarah Bates as Chair of the Trustee from 1 August 2020 and replaces Dame Jane Newell, who
L and G in 100m bulk annuity deal with Countrywide Farmers
Legal & General announces that it has agreed a £100 million bulk annuity transaction with the Trustee of the Countrywide Farmers Retirement Benefits S
InsurTech fundraising rebounds after Covid19
Following the COVID-19-induced slowdown in global InsurTech investment during the first months of 2020, $1.56 billion was raised by InsurTech firms in

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

Email
Password
 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS

WikiActuary

Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.