In the first half of 2020, COVID gripped the global economy with the speed and unpredictability of the scariest of “black swans”. While the governments all the word over had a pretty good idea what to expect in a case of a global pandemic, very few were truly prepared or qualified to make the difficult decisions that it required.
What was particularly hard to foresee was the extent and economic effect of strict lockdowns that had to be put in place in all major markets to counter the little known but deadly infection. Merely about a decade after the global financial crisis, central banks and governments unleashed unprecedented economic stimulus measures as wealth creation had to take a second place after concerns for the future health and wellbeing of the human race.
However, we do not believe that we will see another black swan this year. Equally, given the various epidemiological uncertainties ahead, we do not think that the markets will behave with the predictability of a white swan. In June we saw a strong rebound of economic activity as Asian and European nations started to cautiously to emerge from their lockdowns. As we navigate the shades of grey on the market Swan scale, tactically we are aiming to stay alert, flexible and ready to respond to any sudden volatility when it comes.
We have successfully reduced our exposure to risky assets across our portfolios in January and February and our increased exposure to gold, which tends to perform well in times of uncertainty, has helped both in the downturn and the recent recovery. As markets progress towards 2020’s swan song, our portfolios favour investment areas that are not only attractively valued but also stand to benefit more than others from both the economic recovery and support from central banks and national governments.