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Investment outlook cautious despite recovery

Investment outlook

The outlook for investment remains challenging despite the gradual easing of market volatility caused by the COVID-19 pandemic.

Investors cannot afford to be complacent despite markets showing signs of recovery following the coronavirus pandemic, an investment expert has warned.

Schroders Australian fixed income and multi-asset head Simon Doyle said the outlook for investors remained challenging despite the gradual easing of market volatility caused by the pandemic.

“COVID-19 occurred against a backdrop of complacency in asset markets dominated by optimistic assumptions leaving little room for error,” Doyle said.

“Policymakers responded quickly and at a large scale, with both monetary and fiscal levers delivering substantial stimulus to avoid a liquidity crisis, however, this won’t avert deep recession in key economies nor prevent significant damage to many companies, particularly those with high leverage.”

Citing recent projections from the International Monetary Fund (IMF), Doyle noted investors should not lose sight of the fact COVID-19 was a deep shock to the economy that may have a more lasting impact than the global financial crisis (GFC).

“[The coronavirus pandemic has caused] a very deep downturn, a deep recession. We thought the GFC was a pretty difficult environment from an economic perspective, [but, according to IMF projections] we may see a deeper recession,” he said.

“There is a distinct possibility that we [have] a much more elongated, problematical and less consistent recovery across the global economy [compared to the GFC] and that will have implications for profits and corporate health and interest rates and asset prices generally.”

Last month, Principal Global Investors said the negative impact on share markets inflicted by the COVID-19 pandemic was unlikely to worsen, but investors should remain cautious about taking on more risk in their portfolios.

In April, JP Morgan Asset Management global market strategist Kerry Craig said investors should look to increase investment diversification in their portfolio to combat the market effects from the coronavirus pandemic.

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