"The fall of the markets has not ended: we will have to wait for some signs of attenuation of the epidemic to see the first recoveries, which will be initially timid and then gradually stronger". This was stated by Alessandro Fugnoli, strategist of Kairos, in thelast number of the column "On the fourth floor", recorded in podcast due to the restrictions imposed by the coronavirus.
THE RECESSION COMING AND THE RECOVERY TO COME
“The global expansion that began in March 2009, therefore exactly 11 years ago, is over – continues Fugnoli – It was one of the longest in history and it will now be followed by a recession, probably quite short. In Europe, GDP will drop by 1% in the first quarter and by another 4-5% in the second. These are heavy numbers, similar to or even worse than those of 2008. However, if the epidemic ends or is in any case contained by the summer, the recovery will be faster and stronger than in 2008”.
THE RESPONSE OF THE CENTRAL BANKS…
According to Fugnoli, on the monetary front “up to now the response has been very rapid, well studied and aggressive. Central banks have brought interest rates to zero everywhere, they have restored quantitative easing, but above all they have worked on the banks, making it possible for them to keep companies alive. Public guarantees on new loans disbursed by credit institutions will contribute to this. Germany will guarantee up to 550 billion euros and we will see what the other countries will do”.
…AND THAT OF GOVERNMENTS
The situation on the fiscal policy front is different. The response of governments "up to now has been slow, confused and completely insufficient, even in America - continues Fugnoli - The positive aspect is that already in recent years there has been a consensus on overcoming the taboo of public spending financed with money and with debt. We can therefore say that large tax packages will arrive in America in a reasonable time. As always, Europe will come later, but it will come”.
MARKET TRENDS
As regards the trend of the financial markets, the Kairos strategist points out that “the decline of the markets is accelerated by the liquidations of funds in difficulty and by technical factors which, in the presence of strong volatility, require many subjects to reduce their exposures. The Btp are under speculative attack, limited for now. It's a dynamic we've seen before, but every time, in the end, the attack has returned. The Italian debt-to-GDP ratio will increase, but that of all other countries will also increase, probably even more. As for companies, they have entered a sort of financial lockdown and must try in every way to conserve cash: buybacks are suspended and dividends are cut. This too, in addition to the obvious fall in turnover and profits, contributes to the fall of the Stock Exchanges”.
PORTFOLIO MANAGEMENT
So how to move on the investment side? “The moment is approaching when instead of asking ourselves what to sell, it will be good to ask ourselves what to buy – concludes Fugnoli – We will have to be very selective and choose only solid companies that sell essential products and services and that have a lot of cash. In short, for those who are liquid, it will be good to have a shopping list to start using already in the coming weeks, but distributing the purchases slowly between now and the summer".
