If 2019 threw up a fair bit of market uncertainty, 2020 appears determined to put it in the shade.
The outbreak of the coronavirus from Wuhan in China emerged in January. As AsianInvestor went to press the officially designated pandemic had spread globally, leaving the US, UK, Italy, Japan, Korea and several other nations struggling to cope.
The impact caused the US Federal Reserve to cut its benchmark interest rate by 50 basis points on March 3, and then Saudi Arabia threw open the taps to its crude oil pumps a few days later. Throughout this, the world’s financial markets have careened between anxiety and outright panic.
What will happen next? It’s anybody’s guess. We have tried offering our Chinese New Year predictions (see page 36) but given the speed of events it’s possible that several turn out to be incorrect within months, if not weeks.
The fear at the back of many investors’ minds is that the fallout from the first global pandemic in decades leaves the global economy growing at a minimal rate, or even headed into an outright recession for the first time in 11 years.
There is no simple way for asset owners to weather conditions if that turns out to be the case. No particular investment can fully shield them from such widespread problems.
However, while the coming months promise to be a painful time, it offers institutional investors a chance to stress-test their risk management programmes and their external fund partners.
Several asset owners and consultants believe ailing markets will cause some dislocation, throwing up some active investing opportunities. What’s just as likely is that many would-be active investors suffer amid market gyrations, and experience firsthand the difficulty of trying to outperform liquid parts of the equity and bond markets.
For those instances, there is always the option of passive investment replacements. As we discuss in our cover story on page 24, the use of index funds and exchange-traded products is rising (from a low base) in Asia.
Perhaps the best advice amid such volatility is the investment consultants’ mantra: diversify assets and don’t rely too much on individual fund managers. That said, the appeal of illiquid assets such as private equity and infrastructure may gain a boost.
Another potential truism is that quality will out. That is only likely to underline the importance of environmental, social and governance requirements when it comes to investing (which happens to be another growth area of passive investing).
At a time when the world’s markets are lurching between crises, one of the steadiest responses investors can make is to combine a mixture of long-term private market investments and a focus on well-run companies.
Hopefully it will fare them well, at least until the world becomes a bit less interesting.