A global investment management firm has warned caution should be exercised by any investor in their approach to markets due to the effect of government economic stimulus measures around the world and the continuing uncertain nature of the COVID-19 pandemic.
“Our best assessment – this is the time to be cautious when others are greedy. I don’t think it is time to be fearful when others are greedy, that very famous quote, but I think it’s a time to be cautious when others are greedy until we have some clearer scientific evidence around the mutation risk [of the coronavirus],” Magellan Financial Group chief investment officer Hamish Douglass said.
Douglass noted the uncertainty over the effectiveness of vaccines and the likelihood of a mutant strain of COVID-19 emerging and the market impact it might have provide an overlay making an already difficult set of economic conditions even more challenging to navigate.
“The economic recovery scenario is complex enough to deal with. If we just had to debate inflation and interest rates and position yourself around that, one could be we continue off to the races and if we really get inflation, markets could get poleaxed. So actually getting that right is a very important call to get right,” he said.
“[If you then] overlay this with the mutation risk of the virus and you overlay then with some clear speculative frenzies going on in some certain assets that appear to be getting large, [then] this is really, really an issue to deal with.
“At one point you want to have risk on, because of the stimulus and the economic recovery holding up, [but] there are other warning signs telling you you could have your shirts ripped off [if things turn against you].”
According to Douglass, one scenario he is worried about is if significant inflation re-emerges in the economy as a result of the high levels of government spending currently being witnessed.
He warned this would likely force central banks to abruptly raise interest rates, in turn triggering the next worldwide downturn.''