What effect has coronavirus had on different regions around the world? Where are managers seeing opportunities and what is the outlook for investors post Covid-19? The Association of Investment Companies (AIC) has interviewed several investment managers who share their views.

Covid-19

Hugh Young, manager of Aberdeen Standard Asia Focus, said: “Obviously Covid-19 has affected the whole world badly. Asia is a curate’s egg; most countries have dealt with it well and virtually all arguably better than the UK.  Clearly it will be a recessionary year for the region, and a number of companies may well fold whilst others will seize the opportunity.”

Nicholas Price, manager of Fidelity Japan Trust, said: “In Japan, we were in a semi-lockdown for around 1-2 months. The mortality rate and hospital cases look to have peaked here. Tokyo exited from a partial lockdown at the end of May (with regional areas before that), and the Japanese government is in the process of lifting the remaining voluntary restrictions on businesses and domestic travel.”

Tony Despirito, co-manager of BlackRock North American Income, said: “Upbeat fourth-quarter earnings, improving business sentiment and a phase 1 US-China trade deal compelled US stocks higher to begin the year, until the global spread of coronavirus brought a swift and sudden reversal. Concern over the human and economic toll of Covid-19 has prompted emergency measures from governments and central bankers. Some investors have only experienced bull markets, as we’ve lived in one for 11 years.

“Volatility never feels good, but the foundation underlying it is important. Daily market moves in response to the COVID-19 outbreak have matched the scale of those seen during the global financial crisis, but we believe this is not 2008. The coronavirus shock is not one caused by a crisis in the core of the financial system and spreading to the rest of the economy. The economy is on a much stronger footing and the financial system is much more robust. In fact, we believe policy measures and safeguards put in place since 2008 have only strengthened the financial system.”

Outlook

Gervais Williams, manager of Diverse Income Trust, said: “Generally, I think the prospects for the UK economy are unexciting. The government has bridged the corporate cashflow squeeze at present, but if there are ongoing virus hotspots, we worry that the government won’t be able to keep borrowing at an elevated rate for too long. So overall, we think the economic recovery won’t be robust, and that at times we may face further setbacks. This is a difficult environment for mainstream companies to grow, as it is hard for those with major market shares to grow when the world isn’t growing.

“In contrast we anticipate that small cap companies will be able to take market share from those that have become insolvent. Some will acquire insolvent businesses and keep the skilled labour but reinject additional working capital, to generate an attractive cash payback. I think this will lead to small caps outperforming the mainstream stocks. In that regard the UK is very different from most other stock markets, it is the world leader in quoted small caps. Overall, in my view the UK stock market will outperform most others because of its quoted small cap universe.”

Francesco Conte, manager of JPMorgan European Smaller Companies, said: “Europe’s strength is its ability to manufacture highly engineered premium products that are exported worldwide. It should not be a surprise that with global trade having been bruised as a result of the pandemic, Europe’s dominance in premium cars, aeroplanes and luxury goods will have had a negative impact on the region.

“Conversely following unprecedented fiscal and monetary policy, we should not be surprised that as the current anaemic economic recovery morphs into a synchronized global recovery, Europe will once again benefit. From a valuation viewpoint, the case for equities remains compelling. The shape of the path to recovery is uncertain but our investments include many world leaders in markets that should grow.”

Tony Despirito, co-Manager of BlackRock North American Income, said: “Stock volatility is likely to persist as investors weigh the impact on corporate earnings and global supply chains. We expect earnings will be hard hit in 2020 but see coronavirus as a transitory event (perhaps three to six months) that does not permanently impair the world economy and company earnings power.”

Opportunities

Francesco Conte, manager of JPMorgan European Smaller Companies, said: “Analysing the trust today, the most common threads in our investments can be grouped under wellness, technology and the environment. COVID-19 has not changed these trends but in fact reinforced the importance of them.

“Wellness – Amplifon, the global leading hearing aid retailer, looks well placed to benefit from the need for personalised and distinctive hearing solutions for a rapidly growing ageing population. With an excellent management team, rising revenues and a cash-generative business model, we believe the Italian company is well placed to continue growing rapidly through organic and acquisitive growth.

“Technology – Online shopping has grown rapidly over the last few years and was accelerated during the pandemic. One company that has benefited from this trend has been the German online pharmacy, Shop Apotheke, as people avoid social contact. Moreover, the German parliament has made it mandatory for all prescriptions to be online by 2022, raising the possibility that the market may accelerate further in the future.

“Environment – we believe that reducing pollution, plastic, and our carbon footprint is key to better welfare. These trends should accelerate further as European companies prepare to adopt new rules that will require them to disclose their environmental, social and governance risks from 2021. There are several companies in Europe spearheading the drive to environmental sustainability. Tomra based in Norway is by far the world leader in reverse vending machines for the recycling of plastic bottles. Last year, thanks to their machines, some 3.5 billion bottles were recycled.”

Hugh Young, manager of Aberdeen Standard Asia Focus, said: “Small caps in Asia offer a myriad of opportunities, there are thousands of them across geographies and sectors. The key is to sort the wheat from the chaff. Hence our large, long-established team across the region. There are also opportunities from price movements – when markets fell sharply we were able to invest in certain companies that were on our radar screen or top up existing holdings where we could still be confident of the prospects notwithstanding the impact of the virus.”

Tony Despirito, co-manager of BlackRock North American Income, said: “The healthcare sector has held up better than the broad market since the downturn began on February 19. The MSCI Health Care Index was down nearly 22% through March 16 versus an S&P 500 decline of roughly 29%. This is what we would have expected given the sector’s defensive characteristics and limited reliance on the economic cycle. We continue to like healthcare for its history of resilience.”

Risks

Gervais Williams, manager of Diverse Income Trust, said: “We fear that virus hotspots will continue to keep popping up, and that this will slow the economic recovery. Specifically, we fear that there will be numerous redundancies, and that many over-levered companies will go bust, most especially within the consumer sectors. In general, Diverse Income Trust has avoided the consumer sectors, unless they are taking market share such as companies like AO World.”

Hugh Young, manager of Aberdeen Standard Asia Focus, said: “There are always plenty of risks from the political, macroeconomic and epidemiological points of view, but our concentration is on the risks at the individual company level, where we rely on our thorough due diligence. Long-term business outlook, experienced professional management, strong finances and good governance – incorporating all ESG aspects – are vital to our process. This, with a spread across sectors and countries, mitigates risks.”

Further Reading

Moving from recession to recovery: how can investors position themselves?

Inflation or deflation: what will be the longer-term impact of Covid-19?

IFAs and brokers are reviewing the checks they make on older customers