At the height of the pandemic in Mar-2020, stock markets crashed to the levels not seen since the Global Financial Crisis 2008/9 as investors took a flight to relatively safer U.S treasuries or maintained cash positions.
Interestingly, while the performance of gold has been deemed to be positive in times of economic downturn, 2020 was different, as gold prices dropped significantly to a year low of $1,477.9/ozt in Mar-2020.
However, we saw a quick rebound through Apr2020 and May-2020, as investors took advantage of the cheap valuation and became optimistic of a gradual economic recovery, especially as monetary and fiscal authorities rolled out varying expansionary policies. In addition, the yields in the U.S. treasuries increased slightly, as investors’ appetite for riskier assets became stronger.
Looking ahead, we believe that the renewed interests in equities and fixed income might be sustained to pre-COVID levels. The expansionary monetary policy, low rates and recovery in commodity prices will see funds flow back into emerging economies as we approach the end of the year.
However, the downside risks to our expectation include a possible second wave of infection, as well as potential for liquidity crunches, insolvency, and subdued demand, as unemployment levels take time to be restored to pre-COVID-19 levels.
United Capital Research