Page 4 - Investment Outlook

Global Outlook
We are expecting a slow bumpy ride.
In the past few months, we have witnessed the most dramatic loss of wealth and liberty that the world can recall in peacetime. The Dow Jones Industrial Average fell by 32.81% and billions of people throughout the world have been in self-isolation or official lockdown.
Governments and central banks have co-ordinated the launch of a monetary and fiscal bazooka in order to avoid a depression. There is no past example of the scale and violence of the forces at play against us and the response from governments to beat the virus. National governments and central banks stepped in to ‘do whatever it takes’ in order to calm concerns over an economic depression and financial meltdown. Governments have now taken on the burden of their respective economies in order to keep them active and able to recover when the virus is in decline.
This monumental and co-ordinated action from the leaders of the G20 group of the world’s wealthiest countries has led to an uplift in equity values. Collectively they pledged US$5tn to support the global economy in overcoming the economic impact of the coronavirus.
The US Federal Reserve, led by Jerome Powell, has been decisive. They have taken the role of lender of last resort to the whole international payments system and averted a risk to US$ denominated debt that would have particularly hurt emerging economies. The Feds actions have also stabilised credit markets, which are vital to the stability of all capital markets.
The Fed delivered a US$3bn package of measures and now sits on a balance sheet of US$5.5tn.
This support package comes on top of interest
rate cuts to near zero levels and the re-starting of
a US$700bn quantitative easing programme. In Europe, Germany for example, launched a stimulus package worth 4% of its GDP and guaranteed loans of €822bn along with a further €600bn towards
an economic stabilisation fund. These actions were proportionately matched by other G20 members.
Markets responded with significant rallies as analysts and traders came to terms with the implications of the biggest monetary stimulus in human history.
We remain in a position whereby central banks are underwriting the financial system while governments are now underwriting the real economy.
What stock markets fear even more than lower corporate profits are corporate bankruptcies. These do more than just lower the expected return-on- capital; they put the return of capital in its entirety at highest risk. This is why we witnessed market panic in the middle of March forcing central banks
ESTATE CAPITAL INVESTMENT OUTLOOK
3 EDITION 33 Summer & Autumn 2020