Midyear Outlook: Investing under the new norms
In planning investments, investors must deal with two new norms in the world: the near-term behavioral change due to COVID-19 and the increased liquidity and the extended low interest rate era, a combination of both implied a tectonic shift of investment markets nowadays. The result of these two factors has become even more vivid as the pandemic disrupted the economy.
Post-pandemic new orders
At the beginning of 2020, the market enjoyed an upbeat start, which was reflected globally in the prevailing risk-on sentiments. The concerted bullish views of the majority were then disturbed by the outbreak of COVID-19. In a nutshell, affected countries contribute more than 50% of global GDP growth1.
Amid the lockdown, two new norms were observed. Firstly, people have turned more time spent from offline to online, particularly services and content instead of spending at brick and mortar locations. This had the world to ponder how such extended period of new living behavior will shape the economy both from corporate and individual level going forward. Secondly, the hit on the economy also brings the world unprecedented monetary and fiscal easing. The asset purchase programs implemented by the central banks in the West has flooded the financial system and extended the low interest rate era. Under such a backdrop, virtually risk-free instruments, such as government bonds, have returned so little that it propels investors to raise risk appetite for higher returns.
In addition to the two new norms in the market, we identify the key macro factors that investors should take into account in the second half of 2020 (Fig 1).
Familiar and unfamiliar challenges
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