From east to west – what are the global implications of Coronavirus?

The global implications of Coronavirus were outlined at the first ‘virtual’ webinar of Standard Bank’s 2020 Investment Seminar Series.

Chief China Economist for ICBC, Jinny Yan, and Standard Bank’s Head of G10 Strategy, Steve Barrow, weighed up the revised Chinese growth potential in the aftermath of COVID-19 before deliberating the likely magnitude of the pandemic on G10 economies.

More than 500 delegates participated in the presentation which concluded with a question and answer session.

Screened live from Jersey and London, it was opened by Will Thorp, Chief Executive of Standard Bank in Jersey who said, rather than wait for lockdown to be over, it was important to continue running informative seminars as it regularly aims to do both in the Channel Islands and the Isle of Man.

He welcomed the guest speakers before a powerful video montage briefly highlighted how the world has changed since the turn of the year and the outbreak of COVID-19.

Jinny, considered a go-to expert on Chinese finance, provided fascinating insights into the economic requirements for China and the impact of the virus on the second largest economy in the world.

Ms Yan outlined the country’s current position, pinpointing how retail sales and investment suffered their first double-digit contraction in the first quarter of the 2020 for the first time since the 1970s.

She also shared with the audience statistics of the sectors hardest hit, which also include construction, hospitality (more than 35 per cent) and aviation, before outlining what progress needs to be made in the months ahead.

She told the webinar: ‘Yes, there is a major focus on economic recovery and a need to bounce back but significant challenges lie ahead, not least the looming risk of a second wave of the virus.

‘Demand deficiency is an issue and, furthermore, there is uncertainty within the exports sector with companies not willing to spend on investment. Challenges like these will naturally weigh on China’s consumption-led economy.

‘There is, however, a silver lining with enough evidence to justify further policy support by the government and a comprehensive package of support measures for the economy.

‘There has been a real focus on policies to ease the financing pressures on smaller companies who are vulnerable compared to state-owned firms which are generally in a stronger position. The broad fiscal deficit ratio is likely to double in 2020 which may raise concerns over China’s debt sustainability. But Beijing has so far been extremely prudent due to concerns over exacerbating existing debt levels which has been ramping up since the financial crisis.’

The webinar then moved onto the outlook for 2020 with discussion focused on new infrastructure investments and their potential to lift China’s GDP growth back towards target trajectory.

‘New investments will also help lift global market sentiments,’ explained Steve who has worked as a currency and fixed income strategist in the financial markets for the past 35 years.

‘At times like this it is more important than ever to adopt a top-down view of the global economy and global markets. The coronavirus pandemic has delivered the fastest, deepest economic shock in recent history and affects everyone. This downturn and its damage can be generally under-estimated and we must realise the shock to the global economy from COVID-19 has been faster and more severe than the 2008 global financial crisis. Indeed, with global growth currently falling at about three per cent, many times bigger than the financial crisis.

‘As it stands multiple dimensions of this crisis are unprecedented and unknowable.’

Steve, who has been at Standard Bank since 2008, went on to discuss the likely magnitude of COVID-19 for G10 economies, the appropriateness of policy responses, and shared views on the trajectory of asset prices over the long term.

He highlighted high uncertainty including the path of the shock and recovery, whether economies will be able to return to their pre-shock output levels and growth rates, and whether there will be any structural legacy from the coronavirus crisis.

‘Unless the pandemic is stopped, economies and markets around the world will continue their freefall. But even if the pandemic is more or less contained, overall growth still may not return by the end of 2020,’ Steve continued.

‘The unprecedented COVID-19 shock has already generated stress in capital markets, triggering a forceful response from central banks. If liquidity problems persist and real economy problems lead to write-downs, capital problems can arise.

‘As it stands, I expect the US to recover first due to its dynamic economy, although that doesn’t necessarily mean it has the best strategy for taking risks. I have to say I’ve been impressed by the way Australia and New Zealand have dealt with this and their predictions have been highly accurate.

‘Whenever we see a global crisis we run into a shortage of dollars for it is the most significant international currency, responsible for two thirds of global loans, two thirds of international lending, two thirds of foreign exchange reserves, so it is crucial.

‘The policymakers appear to have succeeded in stopping a financial crisis, but future bankruptcies could test this.

‘I expect policy rates will stay at their current levels for three years or more. The risk of policy mistakes lie in sounding the all-clear too soon and adopting quick fiscal austerity for which there would be many permutations.

‘All in all, while there is a policy playbook for dealing with financial crises, no such thing exists for a large-scale real economy freeze. There is no off-the-shelf cure for liquidity problems of entire real economies.

‘However, I am confident the health and economic crisis will not develop into a financial crisis.’

The panel also welcomed Justin Maloney, Co-Head of the Global Equity Fund for Melville Douglas, Standard Bank’s global boutique investment management company.

He summarised the current position in Melville Douglas’ portfolios and subsequent repositioning in response to the unprecedented market volatility, emphasising the importance of sticking to a ‘tried and tested investment process through the storm’.

‘The overarching objective has to be to survive the crisis and thrive on the way out,’ he added.

The highly informative webinar concluded with a Q&A session addressing some of the points raised throughout the discussion.

Chris Stead, the Bank’s Head of International Portfolio Services, who had hosted the event and Q&A, thanked all those who submitted questions. Copies of the presentations, as well as a recording of the webinar, have been sent to those who signed up.

‘It is important for you all to know it is business as usual at Standard Bank,’ he told the audience.

‘These are unprecedented times and we continue to ensure you have full access to wealth, portfolio and relationship managers throughout this. We are in it together.’

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