In focus

Global Market Perspective - Q2 2020

The S&P 500 recorded its worst quarter since the last global financial crisis (GFC) as risk assets gave up most of their 2019 gains.

The equity markets initially made a promising start to the year on the back of better macro data and the prospect of reduced geopolitical headwinds, particularly on the US-China trade front.

However, the spread of Covid-19 and potential negative impact on the global economy and corporate earnings triggered stock markets to tumble across the world, with the S&P 500 experiencing the third-largest daily fall in its history.

Meanwhile, the prospect of weaker global demand due to coronavirus and the increase in supply from OPEC oil-producing countries caused the oil price to suffer its worst quarter in history.

In stark contrast, aggressive monetary policy stimuli from policymakers around the world boosted safe haven assets such as government bonds and gold.

With the Federal Reserve (Fed) returning to quantitative easing (QE), US Treasuries had their best quarter since the GFC.

Looking further into 2020, Covid-19 looks to have plunged the global economy into a severe recession such that it could be the worst year for growth since the 1930s.

We expect there to be a significant hit to activity in Q2 as the major economies experience the impact of lockdowns and restrictions on population movements.

By Q3, we assume that economic normality resumes with monetary and fiscal policy actions enabling a strong rebound in growth.

However, the risk to our central view is that the coronavirus lingers and the return of the infection leads to a second wave of lockdowns such that there is a double-dip of global activity.

In terms of asset allocation, the substantial liquidity provisions by the Fed has led us to add back to investment grade debt as valuations look compelling.

However, we are underweight equities as they have yet to process the significant fallout caused by the coronavirus on corporate earnings.

Within the asset class, we prefer emerging equities relative to the US as valuations look attractive and they are also the beneficiaries of looser US dollar liquidity.

Meanwhile, sovereign bonds continue to offer little value relative to equities, but they do provide a hedge in the portfolio against a more deflationary outcome.

Read the full report

Global market perspective - Q2 2020 15 pages | 4,709 kb


Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.