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Back half of 2020 better for markets

global markets

Improved economic activity across developed markets is likely in the second half of this year, a global investment manager has forecast.

A global fund manager is anticipating improved economic activity will be experienced across developed markets in the second half of 2020 basing the prediction on to the gradual easing of COVID-19 restrictions around the world.

Aviva Investors stated the worst of the market weakness will have been experienced in the second quarter of 2020 when the major developed economies of the world suffered falls in their respective gross domestic product (GDP) numbers of between 10 per cent and 15 per cent.

In contrast, Aviva has forecast a strengthening of developed markets’ GDP of between 5 per cent and 15 per cent in the third quarter of this year, but has warned investors against thinking the predicted “V-shaped” recovery will be immediate.

Instead, it said activity would not return to pre-COVID-19 levels until midway through next year.

Further, the firm noted there will be permanent damage and loss to markets, the extent of which will not be known in the immediate term. It also stated future attitudes and behaviours toward investment markets are likely to experience some lasting change due to the pandemic.

The manager also warned a smooth market recovery is improbable given the probability of new outbreaks of COVID-19, which could result in the reintroduction of societal restrictions.

Given the prevailing market conditions and the continued uncertainty about the coronavirus pandemic, Aviva has recommended investors focus on capital preservation, but should still be mindful of opportunities where good quality assets have been oversold.

“We prefer to be modestly underweight global equities because of stretched valuations and elevated risks to the economic outlook. Our overweight position in credit is based on relatively more attractive valuation metrics, as well as being supported by central bank purchases,” Aviva Investors head of investment strategy and chief economist Michael Grady said.

“Within credit, we have a preference for US and European investment grade. In the sovereign space, we are modestly overweight, with a preference for the US where there is scope for further yield declines. This is partly balanced by an underweight in core European markets, although we also have a small overweight in Italy, which should benefit from positive developments in the EU Recovery Fund and other policy initiatives.”

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