Many risks remain
As well as the great uncertainty surrounding just how quickly and strongly the economic recovery will take hold, the risk of a second wave of coronavirus outbreaks lies not far below the surface, while corporate earnings in 2020 are also subject to great uncertainty.
“As an investor, it is difficult to determine whether or not the falls in equity prices since the market peaked in February reasonably reflect the downturn in corporate earnings,” says Henrik Drusebjerg.
Moreover, considerable political risks exist that could trigger further market turmoil – not least the trade war, where the rhetoric between the US and China has been ratcheted up of late, while Brexit uncertainty could also flare up again. The EU and the UK must soon agree the terms of their future relationship if the UK is to exit the EU as planned at the end of 2020, when the current transition period expires.
Return potential outweighs risks
However, the corona crisis is the all-dominating factor at the moment, yet while the crisis has hit the economy extremely hard, Henrik Drusebjerg expects we can avoid an extended economic recession.
In contrast to the financial crisis, for example, the chief strategist points out that the corona crisis has not been triggered by a deeper structural crisis founded on major economic imbalances that require a painful period of economic adjustment. Moreover, politicians and central banks have moved faster and further than during the financial crisis – and this may also help encourage the economy to more quickly shift up a gear and get many of the recently jobless back to work.
“While further setbacks in equity markets are almost inevitable, we estimate the potential from equities in the slightly longer term will more than offset the short-term risks,” he says.
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