'Silver lining' for investors despite dark clouds ahead
But recent macro data suggests the world is experiencing a large fall in economic activity, he added, with a global recession now a likely outcome. Little posed the “critical question” for investors: how deep and how long is this economic slowdown likely to be?
He said that part of the answer will be determined by how quickly and widely COVID-19 spreads through the world, and how disruptive the containment measures taken by authorities are. It will also be important to track how labour markets and the financial system respond to the crisis.
Crucially, despite a highly uncertain environment, HSBC GAM believes there is an important silver lining for investors.
Little explained: “Valuations of riskier asset classes continue to look attractive, especially against cash and government bonds. Global equities, high-yield bonds and some parts of the alternatives space - such as private equity and hedge fund strategies that offer equity risk diversification - look like the best areas to deploy risk. But we need to closely monitor how the fundamental picture evolves against what is being implied by market prices.
“EM asset classes continue to have attractive valuations, but we think that exposure could become a bit more challenging from here. Relative valuations versus developed markets have narrowed and emerging economies have limited capacity to manage the current health and economic crisis. In this context, selectivity is key.”