Cover story – Coronavirus
COVID-19: GOING VIRAL
portfolio institutional analyses how this virus-driven financial crisis could affect institutional investors. Mona Dohle reports.
The effects of Coronavirus have sent global stock markets tum- bling and are eerily reminiscent of the last recession. As long- term investors, pension schemes should, in theory, be relative- ly resilient to short-term market movements. In practice, a crisis that has already wiped billions of dollars off the value of stock markets around the world could trigger severe cash-flow and liability challenges.
Economic outlook Markets had been anticipating another downturn for some time. By the end of last year, around 80% of institutional inves- tors believed that there would be a recession within five years. Nevertheless, when stock markets started sliding at the end of February there was still an element of surprise. Unlike the 2008 financial crisis, which was sparked by a securitised debt bubble in the US mortgage market, the triggers for the current crisis are firmly rooted in the real economy. Coronavirus, or Covid-19, has thrown a spanner in the works of
20 | portfolio institutional April 2020 | issue 92
global capitalism, causing fundamental changes to the lives of ordinary people across the globe. Unlike its predecessor, SARS 1, which broke out in China in the early 2000s; it’s younger sib- ling, Covid-19 or SARS 2, is much more lethal and is spreading with lightning speed from Asia across the Western World. At the time of writing, 188 countries have closed their schools; the majority of Schengen countries and the US have closed their borders and many countries, including the UK, have entered an almost total lockdown. “What was initially thought to be a supply side event that was disrupting global trade emanating from the Chinese manufac- turing hub, is now turning out to be a demand shock as con- sumers and corporates grind to a consumption halt,” warns Gavin Corr, director, manager selection services at Morningstar. Central banks and governments have attempted to mitigate the effects of the crisis with large scale cash injections. In just a single day, the US Federal Reserve injected $500bn (£423.9bn)
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