Three post-coronacrisis scenarios and how to invest for each, according to UBS
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Will we have a “second wave” or will we catch a “second wind”? Mark Haefele, chief investment officer at UBS Global Wealth Management, asks from a monthly perspective.
A second wave would not only imply a recurrence of COVID-19 cases. It could also include a return to trade tensions between the U.S. and China, and valuations of U.S. stocks which are already relatively wealthy, even after the March liquidation. Markets have been limited, hoping for more clarity on what Haefele believes to be the key question: whether viral infections will recur.
Still, investors need to plan, and Haefele presents three possible scenarios and investment ideas for each.
Reverse scenario: In this perspective, the blocking measures are relaxed throughout May and June, and there is no need to reimpose them later. “In this case, we expect some of the underperforming market segments, including cyclicals and equities, to start outperforming.”
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Haefele points out that such superior performance will not be widespread. In Europe, this suggests that investors are turning to German industrialists and EMU, and to the United States. In the United States, average values, especially those benefiting from a slight increase in household consumption.
While it is natural to expect the value style to be in favor if the economic cycle takes a second wind, the best way to play will probably be in US energy stocks. United States And British stocks, says Haefele. Since the U.S. dollar would likely depreciate in this scenario, the best currency against the dollar
DXY
it would probably be pound sterling.
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Central scenario: In Haefele’s reference case, economic activity returns to normal in May and June, but “economic functioning does not fully normalize until December”.
Such a scenario would favor credit, particularly the investment category of the United States. United States
LQD
and high-yield corporate debt
HYG
, US dollar emerging market sovereign bonds and green bonds, said Haefele. It would also confirm some of the bank’s long-term investment theses, such as telemedicine, gene therapy, automation and robotics.
Negative scenario: In the worst case, investors will have a hard time finding safe assets with attractive values, says Haefele. While investors are likely to seek high-quality bonds
TMUBMUSD10Y,
“They already have yields so low that they virtually guarantee the destruction of purchasing power in the long run,” he writes. Gold
GC00,
will probably recover.
While the collapse in consumer demand during the spring makes disinflation more likely than short-term inflation, with a market price at record inflation, Treasury Inflation Protected Securities They could outperform in the event of inflation or inflation uncertainty. Perhaps more possible than investors think, said Haefele, “given the high level of public debt and questions about the independence of the central bank.”
Investors can also choose to seek active management in any form: hedge funds or dynamic asset allocation funds.
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