One week looks very much like the next: in the last few days, the economic situation has continued to deteriorate. The latest data from the US point towards a recession, with retail sales down, industrial output collapsing and confidence at record lows. These figures coincide with a dramatic explosion in unemployment in the US, where a further 16 million jobless have joined the ranks of benefit applicants in just three weeks.
In addition, the forecasts released by the International Monetary Fund (IMF) have clearly confirmed the depth of the crisis, with its report identifying the presence of both a negative supply shock and a negative demand shock. The IMF draws a clear conclusion: global growth is expected to be -3% in 2020, the lowest level since the Great Depression of the 1930s.
Readers of the IMF report will have noticed that “uncertainty” is the word that is most often used. The trajectory of the economy is generating its share of doubts.
By way of comparison, in 2009, following the 2008 financial crisis, global growth fell to -0,1%. Lastly, readers of the IMF report will have noticed that “uncertainty” is the word that is most often used. The trajectory of the economy is generating its share of doubts. Should the virus spread begin to curve upwards again, requiring the lockdown to be extended, the report stresses that the economic recovery expected in 2021, with estimated growth of 5,8%, could be delayed.
The announcement of an extension to the lockdown in a number of countries overshadowed the robust performance of the equity markets. The MSCI World index of equity markets in developed countries has climbed by more than 8% since the start of the month. Also worthy of mention is the excellent performance by US technology stocks in the Nasdaq index, where the losses accrued since the start of the year are now a thing of the past.
The historic agreement reached by the OPEC member countries and other producer countries such as Russia and the United States was a considerable factor in this performance. The agreement provides for a reduction in oil supply of 10 million barrels per day, around 10% of global production, to address the collapse in international demand. This could help to stabilise the price of oil pending the global economy's gradual exit from lockdown. Many governments have also announced new support measures for businesses.
For example, the French government has decided to double its emergency scheme from EUR 45 billion to EUR 100 billion to finance the cash flow of struggling businesses and short-time working. In the US, the Fed also made an impact by announcing a programme of loans of up to USD 2.300 billion for businesses, households and local authorities.
This good news comes in addition to the fact that the number of patients admitted to hospital appears to be levelling off. While things are undoubtedly on the right track, we remain cautious. Firstly, for the moment there is neither a vaccine nor a treatment capable of halting a second wave of infections once the lockdown measures are lifted. In addition, it is exceptionally difficult, if not impossible, to estimate the impact of the lockdown on the economy. In this regard, the economic data reflect the major hit to the economy and the explosion in applications for unemployment benefit. In the space of three weeks, the number of applicants has reached nearly 10% of the country’s active population.
Lastly, the banking giants kicked off the earnings reporting season. While the volumes involved mean that their trading business is strong, consolidated earnings have plummeted following the recognition of substantial provisions for potential and probable defaults in their credit portfolios. We remain convinced by our defensive allocation, as reflected in our increased exposure to the Healthcare, Real Estate and Communication Services sectors.
Risk appetite also made a comeback in the bond segment and there was some relief for investors with the announcement of an abundance of support measures.
Risk premiums on corporate debt narrowed significantly in both Europe and the United States, by 40 and 75 basis points, respectively. The EUR 500 billion support package approved by the European Union Member States and the USD 2.300 billion from the Fed led to a field day for corporate debt, which followed the trajectory anticipated in our positioning in high-quality, short-maturity corporate debt.
Sovereign rates suffered from the effects of the resurgent appetite for risk, which naturally pushed them upwards in Europe and in the United States, before going into reverse over the last few days. The retail sales figures published in the United States, which fell by 8,7% in March, put an end to the burgeoning optimism of the last few weeks. From a geographic perspective, Italy remains the country worst hit by Covid-19 and Italian rates naturally suffered most from the recent rate rise. The European Union agreement on a support package of almost EUR 500 billion for business also weighed on European rates. A further key meeting to address support measures will be held on 23 April. Lastly, it should be noted that we no longer have a preference for the short end of the US curve as rates are now at very low levels.
Our different advisor and managed portfolios reflect these permanent changes in the capital markets and the very regular interventions by central banks. The last few weeks have seen changes in investment allocations with the aim of limiting exposure to high-yield bonds or rebalancing exposure to particular sectors. As such, while on 14 April, the EuroStoxx 50 and the Stoxx 600, two major European indices, posted performances for the year of -22,1% and -19,7%, respectively, the performance of our ActivMandate Equilibré model portfolio over the same period was -6,3%.
Globalement, les portefeuilles que nous gérons montrent toujours une plus forte résilience à la baisse que celle des marchés. Celle-ci s’explique par une sélection de valeurs qui se base sur une approche fondamentale qui met l’accent sur un bilan sain et donc un endettement qui reste gérable au niveau de chaque entreprise. À l’heure actuelle nous privilégions un positionnement sur des actions à caractère défensif. De plus, nous essayons de profiter des opportunités qui se présentent actuellement pour renforcer certaines de nos positions en portefeuille en adoptant une stratégie par étapes.
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