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Path to Recovery Remains Unclear


Employee benefits and pension actuaries Quantum Advisory has told businesses that, whilst markets have rebounded strongly from March’s lows, significant risks remain and the global economic outlook remains highly uncertain. Stuart Price and Dan Redwood from Quantum shared an informative insight into the world of pensions and investments, paying particular attention to how financial markets have reacted to the COVID-19 pandemic and how the pension and investment industry has responded. They also relayed their views from a financial perspective as to what will happen as we emerge out of the current crisis and reach some form of ‘normality’.

Investment Consultant, Dan Redwood, said:

“Equity markets fell by around 35% which isn’t unusual in times of crisis. What was unusual, was the speed at which they fell; taking just 20 days from peak to trough.

“Following a raft of monetary and fiscal measures from central banks and governments, global markets have seen a swift bounce back in Q2 so far. However, volatility remains and the strength of the rebound varies dramatically between sectors. Oil and gas has fallen by 35.7% since 31 December 2019, while the technology sector has seen a 15% increase. Healthcare has also unsurprisingly fared relatively well with just a 0.5% dip.

“In April, the UK GDP fell 20.4% – the biggest ever fall – and Eurozone industrial production fell 17.1% in the same month. Unfortunately, we must brace ourselves to see a lot more numbers like this over the coming months and recessions will be inevitable.

“Although the path to recovery remains unclear at present, looking ahead, there appear to be three possible outcomes; V-shaped, U or W-shaped or L shaped. In the former possibility, the virus is quickly contained and we can expect risk assets to perform well and there will be the potential for a reversal of interest rate cuts in the medium term. The middle option, which we see as the most probable, sees a longer recovery, potentially accompanied by volatility driven by a second wave. The latter outcome is the most pessimistic and could spell a prolonged or no recovery and large scale unemployment.

“So what are the implications for investors? Diversification remains key, which we have been saying for years, and it will be crucial to focus on quality and hedge unrewarded risks. Ensure sound cashflow management so you’re not caught out when liquidity dries up and remain dynamic. Remember, with volatility, comes opportunities.”

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