Christian Nolting, Chief Investment Officer and Head Investment Solutions, Deutsche Bank International Private Bank, on the impact of the pandemic from the investor’s point of view.
Crises stress existing systems. They force us to change how we work and adjust to the new realities. But many of the problems they highlight are pre-existing and often long-standing. The economic and investment fallout from coronavirus, like from many other crises, should be seen in this context.
The ancient Greeks saw that certain times were good for deciding on change – they called them “kairos” moments. Individual countries have been quick to embrace “kairos”. Radical fiscal policy has become standard, with support both massive in size and delivered in innovative ways. Monetary stimulus continues to increase: the size of the ECB’s balance sheet, for example, has risen from EUR 4.7 trillion (mid- April) to EUR 6.4 trillion now, double the size of German GDP.
But while we have an implicit consensus on reactive economic policy to the current crisis, there is no prospect of an explicit global programme for long-term non-reactive economic management and development – as was agreed, for example, at the Bretton Woods conference in 1944.
What this means is that corporates will have to learn to live with continued policy uncertainty in coming years. History suggests that firms who change in tough times will ultimately find the going much easier than those who defer the inevitable – but corporate change will be undertaken on the basis of very limited information about what might lie ahead. Corporates will have to use existing knowledge and skills to change now, or risk paying a much higher cost for their inaction in future.
Many changes will, as usual in crises, simply amplify and accelerate underlying trends. One such trend is homeworking: much discussed in the past, little implemented. But now studies are suggesting that perhaps one in six staff could work from home for ever. Other labour market trends may be less predictable and less benign. One recent U.S. study pointed to 32 to 42 % of U.S. layoff s becoming permanent – implying a massive reallocation of employment, including intra-industry. Extended government support programmes could merely delay the inevitable.
One lesson from all this is that economic and business ideology should take a back seat. There will be a need for an eclectic approach rather than an overly rigid one. Companies will need to keep multiple aims in balance as they shift course to find a financially sustainable solution. Innovative and collaborative solutions – even if over only a limited period of time – could be the way ahead.
Investors should also take an open-minded approach in looking for future opportunities. It is instructive that some recent market moves have accelerated of existing trends. The tech sector – one big winner from the crisis, in terms of both revenues and stock prices – has been outperforming the broader equity market since 2015. In fact, the MSCI AC World IT sub-index has registered almost double the gains of the broader MSCI World Index over the last five years. Investors may now consider it almost a separate class to equities generally. Their next challenge is to broaden their search further to find additional investment winners of tomorrow..
This article appeared first on our client magazine WERTE #22 - read more from the magazine on www.werte.com.