Navigating volatile markets

AROUND THE TABLE | OCTOBER 2020

The global economy is emerging from a pandemic-led recession – the deepest in modern history. While growth in the latest quarter is likely to show a strong rebound for most economies, much uncertainty remains about the shape of the recovery over the rest of this year and its sustainability in 2021.

At Crestone’s most recent investment forum, we asked panellists to discuss their near-term outlook, and asked how they view the most likely central case scenario for the world and Australian growth over the coming year. Key strategies for investing across different asset classes were explored in light of relatively expensive equity and sovereign bond markets.


  • The virus and fiscal stimulus risks are weighing on the near-term outlook – The resurgence of the virus is challenging notions the pandemic is a finite event. There is a risk, given stalled US stimulus talks, that the ‘fiscal bridge’ being built may not reach far enough. More positively, there were signs societies are learning to live with the virus without resorting to full lockdowns. The US election, and the potential for the outcome to be contested, was viewed as driving near-term market volatility.

 

  • There are reasons to be optimistic about Australia’s recovery – Australia is in a relatively strong economic position after 29 years of growth, and with less structural risks in household debt and bank funding than several years ago. Despite risks around fading fiscal stimulus, there was some likelihood prior support would underpin a genuine resurgence in demand when restrictions eased. However, any recovery was expected to be uneven, given the economic shock was uneven.
  • Investment opportunities still exist, despite expensive markets – Finding value in equities will require accepting a long-term horizon, as fully valued markets are likely to churn sideways near term. Opportunities exist in cyclical re-opening trades, companies with strong cost control prospects and emerging markets. In fixed income, the ‘sweet spot’ for investors is to employ a shorter duration strategy and seek income in higher quality segments of credit. Unlisted real assets are an increasingly attractive source of defensive yield and asset growth.