Will we have a “second wave” — or locate a “second wind”? asks Mark Haefele, arch investment officer of UBS Global Wealth Management, in a monthly outlook.
A second call wouldn’t only engage a regularity of COVID-19 cases. It competence also embody a lapse of U.S.-China trade tensions — and U.S. equity valuations that are already comparatively rich, even after a large sell-off in March. Markets have been range-bound, watchful for some-more clarity on what Haefele thinks is a pivotal question: either pathogen infections will light adult again.
Still, investors have to plan, and Haefele lays out 3 probable scenarios along with investment ideas for each.
Upside Scenario: In this outlook, lockdown measures are eased via May and June, and do not need to be reimposed later. “In this case, we would design some of a marketplace segments that have underperformed, including cyclicals and value, to start to outperform.”
That outperformance won’t be opposite a board, Haefele stresses. In Europe, he suggests investors demeanour to German and EMU industrials, and in a U.S., to mid-cap stocks, quite those that advantage from a miscarry in domicile consumption.
While it’s healthy to design a value character to be in preference if a mercantile cycle gets a second wind, a best approach to play that will expected be in U.S. appetite holds and U.K. equities, Haefele says. Since a U.S. dollar would expected decrease in this scenario, a best banking gamble contra a dollar
would expected be a British pound.
Read:Here are a not-too-pricey holds Goldman recommends as economies emerge from coronavirus shutdowns
Central scenario: in Haefele’s bottom case, mercantile activity gets behind to normal in May and June, though “economic functioning does not entirely normalize until December.”
Such a unfolding would preference credit, quite U.S. investment-grade
and high-yield corporate debt
, USD rising marketplace emperor bonds, and immature bonds, Haefele said. It would also endorse some of a bank’s longer-term investment theses, such as telemedicine, genetic therapies, automation and robotics.
Downside scenario: In a misfortune case, investors will be hard-pressed to find protected resources with appealing values, Haefele notes. While investors will expected strech for high-grade bonds
, they “already have such low yields that they are probably guaranteeing a drop of purchasing energy over a prolonged term,” he wrote. Gold
will expected rally.
While a fall in consumer direct over a march of a open creates disinflation some-more expected than acceleration over a brief term, with a marketplace pricing in record-low inflation, Treasury Inflation-Protected Securities could outperform if there’s any sniff of acceleration or acceleration uncertainty. That’s maybe some-more probable than investors realize, Haefele noted, “given high levels of open debt and questions about executive bank independence.”
Investors might also instead select to strech for active management, in whatever form it’s available: sidestep supports or energetic item allocation funds.
See:This ‘multifactor’ ETF saw a Mar downturn coming. But can it adjust to whatever’s next?