• Stonewood AM

In Case You Thought COVID Was Past Us


Source: thestate.com

It seems very clear that large portions of the world believe that COVID-19 is for the most part in the rear-view mirror. They cannot be blamed for thinking this, mainstream media has focused a lot on the riots in the US, the US Election and the fact that the global economy is re-opening to name a few important discussion topics. Sport is making its way back to our televisions and in South Africa almost every industry is open and able to trade again. We are more open now than we have been in the last 3 months.


Yet the data both locally and abroad shows a very different picture. If you look at the charts below the total number of new infections around the globe is still increasing, the 7-day moving average is a good gauge of this.


While it does appear that emerging markets are now the focal point of the virus and this is a concern for numerous reasons, the world’s largest economy is still very much in the fight with cases increasing again and many of the re-openings being reconsidered. In short, the United States have not handled this crisis particularly well and seem to remain the developed worlds epicenter if not the global epicenter.


Source: worldometers.info
Source: worldometer.info
Source: worldometer.info

The objective of these COVID-19 graphs is not to point any fingers at the US leadership nor question the measures taken by countries across the globe to tackle this problem. It is however to point out that if you think all is well and that the world is almost back to normal think again.


The direct implications of the virus are still very much with us. What this is likely to mean in the short run is the following:

  • The peak of the virus globally has probably not yet been reached in terms of infections and deaths

  • Lockdown measures of some sort are likely to remain in place across the globe in varying measures for the foreseeable future

  • Economic activity is therefore likely to remain well below pre-crisis levels for far longer than many “V-shaped recovery” analysts predicted

  • Many more people are likely to lose their jobs across the world as not all governments can bail out small and medium sized businesses for prolonged periods of time.

  • Emerging markets are important consumers and producers, this means the globe cannot be on the mend economically if very important cogs in the chain are only starting to grapple with the virus now

  • Emerging markets are also probably more likely to feel longer term more severe impacts as in many cases their governments are weaker financially and their healthcare systems simply cannot cope with the demands that will be placed upon them.


We are not epidemiologists and are not trying to tell people about the virus nor are we predicting its trajectory. We are simply looking at the data in front of us and drawing our own conclusions about the likely impact this will have on global trade, economic growth and employment.

It seems fairly evident that although many of the original COVID-19 “worst-case” scenarios are unlikely to materialize the impact of the virus economically may be far greater than what is currently being reflected in asset prices across the globe.


In conclusion,

  • Asset prices have staged a remarkable recovery from COVID-19 lows in March and April.

  • We don’t believe these recoveries are justified by economic data and activity

  • The longer-term impact of the last 4 months in terms of earnings, growth and employment is not yet fairly reflected in prices and expectations

  • There is still a large amount of uncertainty and volatility will likely remain elevated

  • We are cautious about deploying money in the current environment favouring more defensive assets until such time as the data indicates that otherwise.

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