The warning from deVere Group’s Nigel Green follows last week’s sharp rally in global markets – the MSCI experienced its biggest rise in more than a decade – but as first-quarter earnings results, season gets underway this week.
Mr. Green says: “We will get an insight this week into how heavy a hammer-blow coronavirus has delivered to corporate America and corporate Europe in the first three months of the year.
“Almost inevitably, the results will trigger widespread downward revisions.
“However, this sits against a growing optimistic investor sentiment as many countries move to ease lockdown restrictions and as many of the hardest-hit areas around the world see a flattening of their infection curves.
“Investors are now increasingly looking beyond the immediate poor data towards the likely recovery towards the end of 2020.”
He continues: “Yet COVID-19 is set to have a hold over investment decisions for a long time to come because it has, in many respects, fundamentally changed how we do business.
“For instance, in 2018, it was reported that more than half (56% – source: OWL Labs) the companies in the world allowed remote working. Of course, this figure is now going to be significantly higher as working remotely becomes increasingly the ‘new normal’ in many sectors across the globe.
“New industries will emerge, some existing sectors will rebound and strongly, whereas others will decline.”
Due to its far-reaching impact, investors around the world are not only monitoring the usual markers like the price of gold and oil and international fiscal and monetary policies, but they’re also tracking the global health policies and coronavirus-death tolls, insists Mr Green.
“This is as it should be. But there is also a concern that the all-encompassing coronavirus news could prevent investors from tracking other key factors that could significantly impact their returns.”
The deVere CEO observes that besides COVID-19, investors need to consider a raft of other potential headwinds.
“These include the uncertainty generated by this year’s U.S. presidential election,” he says.
“Uncertainty – something financial markets loathe – typically increases in election periods.
“The 2020 U.S. presidential election is seen by many as particularly important as not only will whoever wins be the CEO of the world’s largest economy, they will be in that role as the world economically readjusts following the global fallout of coronavirus.”
He goes on to say: “The risk of a no-deal Brexit for the UK, EU and global economies also remains a key headwind. The UK government has so far not withdrawn from its threat to walk out on critical and complex talks in June if no progress is being made, despite the mass financial disruption caused by the pandemic.
“Another concern should be the longer-term inflation threat.
“Already bloated central bank balance sheets are about to become larger still. As with the asset purchase initiatives rolled out in the last financial crash, they come with the risk that too much cash is being produced.
“When coronavirus passes, and cash is no longer stashed in the same way, will households and firms use very cheap loans and their cash piles to turbo-charge an economic recovery into inflation?”
Nigel Green concludes: “Clearly, coronavirus remains the number one investment headwind.
“However, to safeguard and grow their wealth, it is essential that investors don’t take their eye off other issues that are likely to impact their returns.”