As the COVID-19 virus spread around the world, sending markets into turmoil, our Asset Allocation Committee (“the AAC” or “the Committee”) met by video conference because governments were telling citizens not to leave their homes. These are extraordinary circumstances, and they make asset allocation decisions extraordinarily challenging and consequential.
Attempts to flatten but lengthen the growth curve of COVID-19 infections through social distancing and self-isolation will hopefully save lives and keep healthcare systems running. The price to pay is a steep reduction in economic activity, and financial markets have been adjusting frantically to this new and uncertain reality. In this quarter’s Outlook, the Committee sought to answer four questions: When will the worst of the COVID-19 outbreak be over? What will be the likely economic impact of the virus and the authorities’ fiscal and monetary response? What might that mean for market pricing and volatility? And what does that imply for asset allocation in the immediate term, and over the next 12 months?
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