The Market Review

The COVID-19 global pandemic has resulted in the kind of market volatility that has not been seen since the 2008 financial crisis. The global economy has quickly fallen into a deep near term recession given a synchronised contraction in economic activity across the world. Fears surrounding the coronavirus outbreak are leading consumers and companies to cut back on spending, with a number of countries having gone into lockdown. Meanwhile, tightening financial conditions, supply chain disruptions and the oil price war have also added to these downside risks.

The health crisis unfolding across the world has dramatically re-shaped expectations for both the monetary and fiscal policy response. To date, the monetary and fiscal policy responses have been designed to prevent a widespread liquidity crisis. Most central banks in the developed world have cut their policy interest rates back towards zero and many have restarted or scaled up their asset purchase programmes. The US Federal Reserve (Fed) has wheeled out new facilities, as well as facilities it used during the 2008 financial crisis. The Fed also re-started swap lines with other central banks to ease a global shortage of US dollars; the trade weighted US dollar, having risen to its highest level since early 2017, retraced some of these gains by month-end.

The fiscal stimulus measures announced by many developed market governments amount to some of the largest seen since World War 2. Measures have included comprehensive safety nets for companies and their employees, public guarantee schemes and deferred tax payments.

In 2019, capital market participants have been debating on where we stand in the business cycle and when to expect a global economic recession. With the COVID-19 pandemic the global economy is in recessionary territory with no doubt. It is probably just a matter of time until business associations and economists will increase the pressure on politics and regulation to accompany monetary and fiscal measures by loosened environmental and social standards as additional support for companies. Research shows, however, that the evolution of the Corona virus (and others we have seen in the past like SARS, Ebola, avian influenza, etc.) can often be associated with environmental changes or ecological disturbances, such as agricultural intensification and human settlement, or encroachments into forests and other habitats . In addition, experts suggest that virus epidemics are often triggered by events such as climate change, flooding and famines . In other words, in order to decrease the likelihood of future pandemics, politics must follow the roadmap to a more sustainable economy and society, and continue to fight climate change. This requires a longer term perspective, and with this in mind we would like to remind our clients that investing sustainably means to reflect on the individual investment horizon.

Sustainable and Responsible Investment (SRI)

By avoiding controversial investments and focusing on best-in-class securities, sustainability strategies provide downside risks mitigation in times when you need it the most – at least over the first 3 months of 2020.

Allianz Global Sustainability - Portfolio Update

The Fund’s exposure to quality companies with sustainable characteristics and exposed to structural growth trends led to a more defensive footprint in comparison to the broader equity markets which was beneficial for performance. We have used recent market volatility to make long-term investments in quality growth names we have been assessing for some time, but now is not the time for excessive trading. More than ever, maintaining focus on our investment philosophy and process will be key to delivering potential returns.