As an increasing number of firms instigate travel restrictions and governments enact quarantine measures, experts from Brown Brothers Harriman (BBH) share their views on the potential short and long term impacts on global markets and how financial institutions can respond in such uncertain times. Scott Clemons, BBH partner and chief investment strategist, and Win Thin, BBH’s global head of Currency Strategy, discuss the implications of the recent spread of COVID-19 (Coronavirus).
Highlights from Clemons’ presentation:
- The news is likely to get worse before it gets better. As new clusters of Covid-19 are reported around the US, markets will respond with heightened volatility
- The big economic question is how consumers will respond to news flow, and what effect this will have on personal consumption, and therefore GDP (68% of GDP in the US is consumption-led)
- Passive investment growth has exacerbated volatility (not caused it however)
- BBH’s base case is that any economic effect is short-lived (1-2 quarters), and that modest economic growth will subsequently resume
- Investors should look through market volatility to the durability of underlying value
Highlights from Thin’s presentation
- The ultimate impact of the Coronavirus remains unknown
- China is struggling to recover economically; the knock-on effects to the global economy will be significant
- Policymakers will rely on stimulus now but leave them unprepared for the next downturn
- Rate cuts can’t fix broken supply chains nor address “social distancing”
- Risks to the base case for a V-shaped global recovery are tilted to the downside
- Global investors must be prepared for an extended period of heightened volatility across many markets