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How will the world recover from COVID-19?
An international funds manager has explained how a huge monetary and fiscal response is sheltering the economy, with the fallout likely to occur once governments stop spending.
How will the world recover from COVID-19?
An international funds manager has explained how a huge monetary and fiscal response is sheltering the economy, with the fallout likely to occur once governments stop spending.
Speaking at a virtual adviser event on Tuesday, 28 July, Fidelity global equities portfolio manager Amit Lodha said the fund manager believed financial markets were yet to enter the longer-term recession that was likely to occur after the immediate impacts of the COVID crisis had been dealt with.
“Overall my view, given the government stimulus programs, especially the likes of the US Carers Act and the Australian JobSeeker Act, I would categorise as wartime acts,” Mr Lodha said.
“If you look at the history of wars, the recession happens after the war, not during the war.”
Mr Lodha explained that two-thirds of citizens in the US under the Carers Act are actually making more money now than they were while they were employed, with a further one-third making double.
When government stimulus is removed, “the real recession phase will therefore happen after they are put away”, the fund manager said.
While highlighting that he was optimistic about a short, sharp recovery, Mr Lodha said that he is positioning his portfolio into three different allocations, with 40 per cent of the Fidelity global equities portfolio weighted towards providers of essential goods, while 46 per cent is invested in the winners in a post-COVID world.
He highlighted that as governments look to boost the economy, post-COVID-19 will lead to a new set of winners and losers.
“The recovery that will happen will be based on the winners and losers, which will be different from those of the past cycles, where new technology innovations on climate change, ESG will create new winners.”
“Instead of the government trying to keep the economic patient alive on life support until a vaccine or cure is available,” Mr Lodha said.
Mr Lodha believes technology and healthcare sectors could be two of the biggest winners post-COVID-19.
“When you look at the portfolio companies, we have the obvious technology winners in there, but also companies that are amazing users of technology,” he said.
“If you look at Zoom, it is now the standard of how we interact with the world – just as email destroyed the postman’s business, it’s likely Zoom will have a significant impact on business travel and companies like Qantas and British Airways for a long time to come.”
Finally, the fund manager highlighted that the economy will change as governments would have to deal with the coming economic slump that would likely change the dynamics of markets and bring the ethical implications of investments to the fore.
“Universal basic income could be the take-your-shoes-off moment for this crisis. Every crisis leads to some changes that become permanent. UBI is one of them that could stay with us for a long period of time,” Mr Lodha said.
“To me, from an investing perspective, if the pendulum swings towards caring for people at the bottom of the pyramid, companies that provide basic goods and services will be extremely well positioned.”
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