The Path to Recovery: What’s Next?

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From Franklin Templeton’s Q1 2020 Global Investment Outlook

Looking at the economic and market outlook for 2020 just a few months ago, there’s no doubt times have changed. The spread of the coronavirus dealt a severe, unexpected shock that impacted people—and markets—around the globe. Many investors are wondering how to navigate the supply and demand shocks, and questioning, where do we go from here? While clearly the scope and reach of the coronavirus crisis is unprecedented, our senior investment leaders have plenty of experience navigating periods of uncertainty and volatility. They outline how they see a recovery taking shape once the crisis passes and offer some investment insights.

• We’ve disaggregated our base-case scenario into two components. The first is the coronavirus and its immediate fallout. The second is the underlying fundamentals that underpin the economy. Our base-case has now moved to recession, based on readings of fundamental impacts, market reactions and the significant drag on economic activity globally. We believe diversification is really important in this sort of uncertain environment, and we are slowly starting to reposition our portfolios to take advantage of this extreme dislocation, because we think the medium- and longer-term outlook is more positive.  

• China appears to have been successful in domestically containing the coronavirus. Overall, cases have declined considerably and economic activity is resuming. The government’s focus has now shifted away from containment towards economic normalization, with restrictions gradually being relaxed to improve the ease of doing business, although changed behaviors across the country are myriad and far-reaching. 

• The full magnitude of the aggregate demand shock from the coronavirus may still be underappreciated by markets, in our view. Entire countries, regions and continents have come to an economic standstill. Even the most sophisticated economic models are not fully equipped to calculate what it means when people across the world cannot leave their homes; cannot go to work; and cannot go to stores, restaurants, movies, sporting events, vacations or just about anything for months on end. These are unprecedented massive shocks to the global economy that are likely to reverberate for several quarters. 

• The big question on everybody’s mind right now is how bad the economic downturn will be, and what kind of recovery lies ahead. There’s no doubt that activity will suffer a very severe contraction in March and April. The good news, however, is that the monetary and fiscal policy response appears prompt, decisive and well designed. A coordinated combination of fiscal and monetary support can act as a bridge to help individuals and businesses weather the downturn and can set the stage for a robust rebound.

If you would like to see our experts' full perspective, download the whitepaper.


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