The evolution of financial markets
The expectation of global synchronised growth, that was gaining traction at the beginning of the year, has been removed by the COVID-19 pandemic, which has led various authorities worldwide to impose extreme measures to mitigate the impact of the virus.
Several weeks have passed since the market crisis associated with the global spread of COVID-19: weeks during which we have witnessed extreme financial market developments both in terms of volatility and in the size of its movements.
We are now beginning to have data available for carrying out the first analyses based on the movements of the financial markets and macroeconomic figures.
These are the most relevant facts from our point of view:
Actions carried out by the Federal Reserve
Institutions in the United States, led by the government and the Fed, have been swift and determined in the face of the crisis. This situation has also been reflected in other geographies and countries, as in the case of Switzerland.
Concerns about the response in other geographic areas
Other geographic areas, such as the Eurozone or the majority of emerging countries, are being less determined with respect to the details and magnitude of the measures to be adopted.
Impact on commodities and possible geopolitical consequences
The impact on commodity prices can be very significant. This is particularly true in the case of oil, which has experienced one of its biggest slumps in history, with some futures even trading in negative territory. This situation, combined with high volatility and a sharp decline in certain commodities, could lead to some political and social instability in the countries that are most dependent on them.
The magnitude of the economic crisis
The nature of the crisis makes hard to quantify losses accurately in economic terms, although there is no doubt that the figures are as large as they are unpredictable. It is difficult to find a historical precedent of equivalent impact, one of the main uncertainties being the speed and degree of recovery.
As we have been communicating to our clients over the last month, we think that the current situation has opened a window of opportunity to take positions on some winning strategies in the medium and long term.
These strategies consist of bonds with a significant coupon or carry, and tactical stock-market management strategies, where the risk is low, as they are not structural positions.
At the investment department of BBVA Switzerland, we encourage you to request information from your Relationship Manager.
Recommendations for investing in this environment
- Focus investment in countries where institutions are reliable and independent, such as the United States or Switzerland
- Increase issuer diversification to the maximum
- Avoid issuers with solvency problems
- Avoid investments in geographic areas where populism could represent a problem in the future