Mid-Year Outlook 2020
The global economy is already in a severe recession, although it will take some time for the backward looking statistics to confirm this formally.
Having reacted very badly to the onset of the crisis, most stockmarkets have regained substantial ground from their lows. The spread of the virus is no longer a source of negative surprise and the market’s focus has now turned to the success of the reopening efforts. Without a medical breakthrough, this could prove to be a difficult slog.
Governments have created a tremendous source of new money that, bluntly, will have to go somewhere. The money printer, to reference a popular internet ‘meme’ has gone ‘Brrrr’. The crisis has allowed the adoption of extraordinary and open ended fiscal and monetary measures that would not previously have been countenanced under the guise of ‘prudence’.
Even a partial rolling back of a globalised supply chain would improve the wage negotiating power of the workforce. Additionally, withdrawing the various bailout schemes may prove problematic and employers may need to offer a premium to tempt labour back to work. Both of these considerations seem to plant inflationary seeds, albeit they may be slow growing.
Putting all these factors together, we remain cautious but continuously monitor for signs of fundamental and psychological improvement. Governments now seem determined to create growth and, we suspect, will show increasingly greater tolerance for inflation. This would be a favourable backdrop for a contrarian investor.
12 June 2020
Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.
The Scottish Investment Trust PLC has a long-term policy of borrowing money to invest in equities in the expectation that this will improve returns for shareholders. However, should markets fall these borrowings would magnify any losses on these investments. This may mean you get back nothing at all.
Investment trusts are listed on the London Stock Exchange and are not authorised or regulated by the Financial Conduct Authority.
Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this article should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.