Effects of the Covid-19

3rd March 2020

The effects of the Covid-19 pandemic and subsequent lockdowns across the globe are showing vividly, last
week the IMF forecast the biggest global recession since the Great Depression of the 1930s and predicted
shrinking GDPs of developed economies even after a hopeful recovery at some point in 2021.
Despite the overwhelming supply of negative economic data, stock markets have staged a miraculous
recovery in recent weeks. We are now at levels last seen in 2017 and 50% of the losses incurred during the
sell off in February have been regained.

So does this mean that the markets will bounce back and your portfolio of equities will emerge unscathed?
The answer is almost certainly no. This short term recovery looks a lot like a bear market rally and is the
result of investor confidence in the massive stimulus packages that governments have pledged to deal with
economic woes of Covid-19 and the promise that central banks will print money with almost no limits.
In the Great Depression the US stock market rallied over 44 per cent from the November 1929 low through
to March 1930 before sliding another 80 per cent, and did not reclaim its 1929 highs until September 1954.
No amount of money printing and massive stimulus announcements can protect stock markets from the high
levels of volatility that can occur when fundamental economic factors come into play.

With unprecedented unemployment rates, massive levels of personal and corporate debt from the many
years of low interest rates, terrible corporate earnings and the fear that many businesses will no longer be
viable – stock markets are in for a very bumpy ride.

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