The uncertainty surrounding coronavirus increases…

During the last two weeks, we have witnessed a worsening of the effects of the coronavirus on a global scale; showing that the problem is far from being under control and that it is reasonable to assume that several months of uncertainty lie ahead of us.

The lack of past experience in this type of situation and the “unknown unknowns” about the virus makes it difficult to offer any definite statements about future developments.

…affecting the economic situation…

Until a few days ago, most analysts separated the coronavirus crisis in China from the level of global economic activity, but the latest news of temporary factory closures and the measures taken by the major governments lead us to believe that its influence on economic activity could be significant.

Sectors such as consumer goods, tourism and manufacturing could be seriously affected, if we extrapolate the experiences of China or Italy to the rest of the major economic countries.

…which leads us to consolidate our position in the market.

• Interest rate trends: We maintain our view of zero or near-zero interest rates across the developed world (including the US ). Perhaps over a long period of time as a consequence of a large amount of total debt. The current crisis has accelerated the movement but the objective is the same.
• Valuations: With the current market movement, we are already beginning to see cheaper assets in historical terms, such as some credit segments, in any case, we would wait to see how the current situation develops, given the levels of indebtedness of companies and economic agents in general.
• Economic impact: At this stage, it is very difficult to predict what this will be, as there are no historical situations with which to reliably compare the current one. We believe, in any case, that the global economy is weakened due to the high level of debt, so we are cautious about how the economic activity will be affected.
• Positioning: We maintain our previous position: recommending buying US corporate bonds in highly solvent companies, being prudent in high-yield credit and undertaking very active management of equities.