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The impact of the COVID-19 health and economic crisis is acutely more severe in emerging markets. What will the long-term impact of this be, and could the Renminbi emerge as a safe-haven currency?
View Patrick’s presentation slides[vc_quotes layout=”accordion” quotes=”%5B%7B%22name%22%3A%22Patrick%20Zweifel%22%2C%22job_role%22%3A%22Chief%20economist%2C%20Pictet%20(Switzerland)%22%2C%22content%22%3A%22Patrick%20Zweifel%20joined%20Pictet%20in%201997%20and%20is%20chief%20economist%20at%20Pictet%20Asset%20Management.%5CnBefore%20assuming%20his%20current%20position%20in%202009%2C%20he%20was%20head%20of%20macro%20research%20at%20Pictet%20Private%20Wealth%20Management.%20In%20particular%2C%20he%20had%20economic%20research%20responsibility%20for%20emerging%20markets%20and%20for%20the%20development%20of%20quantitative%20models%20on%20major%20asset%20classes%2C%20primarily%20foreign%20exchange%20models.%5CnBefore%20joining%20Pictet%20he%20was%20a%20research%20assistant%20in%20econometrics%20and%20monetary%20theory%20and%20worked%20on%20international%20research%20projects%20for%20the%20World%20Bank%20and%20the%20European%20Union.%5CnHe%20holds%20a%20PhD%20in%20Econometrics%20from%20the%20University%20of%20Lausanne.%5Cn%22%2C%22image%22%3A%2231911%22%2C%22linkedin%22%3A%22https%3A%2F%2Fwww.linkedin.com%2Fin%2Fpatrick-zweifel-pam%2F%3ForiginalSubdomain%3Dch%22%7D%5D” title=”Speaker” el_class=””][vc_quotes layout=”accordion” quotes=”%5B%7B%22name%22%3A%22Colin%20Tate%22%2C%22job_role%22%3A%22Chief%20executive%2C%20Conexus%20Financial%20(Australia)%22%2C%22content%22%3A%22Colin%20Tate%20has%20been%20an%20investment%20industry%20media%20publisher%20and%20conference%20producer%20since%201996.%20In%20his%20media%20career%2C%20Tate%20has%20launched%20and%20overseen%20dozens%20of%20print%20and%20electronic%20publications.%20He%20is%20the%20chief%20executive%20and%20major%20shareholder%20of%20Conexus%20Financial%2C%20which%20was%20formed%20in%202005%2C%20and%20is%20headquartered%20in%20Sydney%2C%20Australia.%20The%20company%20stages%20more%20than%2020%20conferences%20and%20events%20each%20year%20%E2%80%93%20in%20London%2C%20New%20York%2C%20San%20Francisco%2C%20Los%20Angeles%2C%20Amsterdam%2C%20Beijing%2C%20Sydney%20and%20Melbourne%20%E2%80%93%20and%20publishes%20five%20media%20brands%2C%20including%20the%20global%20website%20and%20strategy%20newsletter%20for%20global%20institutional%20investors%20conexust1f.flywheelstaging.com.%20One%20of%20the%20company%E2%80%99s%20signature%20events%20is%20the%20bi-annual%20Fiduciary%20Investors%20Symposium.%20Conexus%20Financial%E2%80%99s%20events%20aim%20to%20place%20the%20responsibilities%20of%20investors%20in%20wider%20societal%2C%20and%20political%20contexts%2C%20as%20well%20as%20promote%20the%20long-term%20stability%20of%20markets%20and%20sustainable%20retirement%20incomes.%20Tate%20served%20for%20seven%20years%20on%20the%20board%20of%20Australia%E2%80%99s%20most%20high%20profile%20homeless%20charity%2C%20The%20Wayside%20Chapel%3B%20and%20he%20has%20underwritten%20the%20welfare%20of%2060%2C000%20people%20in%2028%20villages%20throughout%20Uganda%20via%20The%20Hunger%20Project.%22%2C%22image%22%3A%2231893%22%2C%22linkedin%22%3A%22https%3A%2F%2Fwww.linkedin.com%2Fin%2Fcolin-tate-839a5a181%2F%22%7D%5D” title=”Moderator” el_class=””][vc_empty_space height=”10px”]
Key takeaways
Emerging markets are appealing for a number of reasons:
fiscal responses to COVID-19 have been appropriate, striking a good balance between necessity and affordability e.g. 9 countries adopted QE to prevent dysfunctional markets
75 per cent of emerging markets offer positive 10-year real yield on government bonds, in stark contrast to developed markets
The collapse in emerging markets was severe but since mid-April there has been evidence of a recovery pathway. India and Latin America are lagging behind (30 per cent below their January levels).
May trade figures already show some stabilisation (emerging markets are twice as sensitive to global trade as developed markets).
RNB is a safe haven currency which is becoming more influential and more international.
Globalisation has done so much to bring people out of poverty that we should continue to support it.
China can be considered separately from the rest of emerging markets during economic analysis. Some emerging market countries have controlled the virus well, others not so well, which illustrates the huge divergence between emerging markets.
Emerging market countries have more positive views on China than developed markets, perhaps in part due to views on human rights, however the economic fundamentals of China are strong. There is no way in the medium-term that you can avoid exposure to Chinese investments.
The Florida State Board of Administration has made some strategic moves to take advantage of opportunities in the dislocation, including in private equity, distressed debt and active listed equities.. But CIO, Ash Williams, is concerned about the underlying real economy.
This research studies the interaction between economic decisions and epidemics. The model implies that people’s decision to cut back on consumption and work reduces the severity of the epidemic, as measured by total deaths. These decisions exacerbate the size of the recession caused by the epidemic.
The global economic shutdown triggered by COVID-19 has put the North American private debt industry to its first major test. What lessons can be learned from the global financial crisis that are relevant today? What lessons are emerging as a result of COVID-19? And how might the industry evolve?
The global economy is projected to contract sharply by –3 per cent in 2020, much worse than during the 2008–09 financial crisis. In a baseline scenario--which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound—the global economy is projected to grow by 5.8 percent in 2021 as economic activity normalises, helped by policy support. The risks for even more severe outcomes, however, are substantial.
The PRI is working with signatories to further develop thinking on what the COVID-19 crisis means for investors. It is establishing two signatory participation groups to coordinate and develop investor responses, focusing on short term responses, and a future economic recovery phase.
This OECD note provides illustrative estimates of the initial direct impact of shutdowns, based on an analysis of sectoral output and consumption patterns across countries and an assumption of common effects within each sector and spending category in all countries.
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