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Brief Market Insight

Brief Market Insight

Why the Corona is good for asset allocators?

It has been seven weeks since the start of Pesach and 11 weeks since most western world countries started the 100 case count. I have a screenshot on my phone from early March showing the worldwide case count at 200,000 with 8,000 deceased. As I write to you now, it is 5.5 million confirmed cases with 350,000 deceased, and that is with social distancing of varying degrees across most parts of the world. Can you imagine the virus numbers if we did not take any protective measures?

As we get used to this virus, we contemplate collectively the implications of it on lifestyles, economics and of course our money. Many aspects of life are going to change significantly. Is it all bad or negative for markets? Most definitely not. As one industry struggles to adapt, another will surge forward in opportunity. Whilst sports, concerts and hospitality struggle, online gaming and health services boom. Did you know that online gaming pros and content streaming top earners earn more than NBA basketball players and pro golfers, especially after Corona? This type of industry offset, coupled with massive government fiscal and monetary support, is very good for asset allocators like Pioneer as we have very broad exposure.

At this stage there appears to be a total disconnect between the levels of the stock markets and the real world. The main S&P 500 index is showing modest losses and NASDAQ is even positive year to date. It is indeed difficult to reconcile this with the total collapse of economic activity that we see around us and on social media. To try to understand this, there are two factors at play. Firstly, one needs to look beyond the current disastrous quarter. We all know that Q2 results are going to be catastrophic and just like many of the businesses, which we have invested in, we live with the challenge knowing we will make less money this year. However, we are still here and we will make more money in the future, so it is almost as if this period is a built in risk of doing business and owners live with it. There is still a lot of long-term money invested in the markets. Secondly, and perhaps even more significantly, is that the methods central banks are using to inject money into the economy, by buying assets in the market, creates "artificial" demand and therefore artificial value. Ironically, this type of asset inflation is good for holders of assets. There are social consequences but that is a separate discussion. There is obviously a lot to be concerned about and a lot that could happen. However, overall, we remain constructively optimistic, but it will take time and we have adapted our investment strategy to reflect that. We need to see the USA numbers not only flatten, but also begin to improve significantly and realistically, and that will only happen in Q3. This means that the economic engine of the USA will restart in fits and stutters across industries and states from now. By the end of the year, we believe it will be firing on all cylinders again. In our global portfolios we like corporate bonds and solutions based on structured notes, we remain underweight in equity with a USA bias.

The situation in Israel is indeed optimistic. In retrospect, a sudden and early start to the lock down was the correct approach and the numbers reflects it. Israel is now facing the challenge of taking on the economic damage with its new government. This is not a simple task at all and in our local portfolios, we favor bonds over equities.

We invite you to visit our Facebook page and watch the webinar recordings we held in the past weeks. The webinars includes market commentaries, Structured Note explanations and other investment opportunities in English and in Hebrew.

 The aforementioned information is not a substitute for personal Investment marketing, which takes into account the particular circumstances and special needs of each person. The views expressed in this Review should be considered as market comment for the short term for information purposes only. As such the views herein may be subject to frequent change, are indicative only and no reliance should be placed thereon. This Review does not constitute legal, tax or accounting advice, or any investment recommendation, or any offer to buy or sell financial instruments of any kind, and does not take into account the investment objectives or needs of specific investors. Although this Review has been produced with all reasonable care, based on sources believed to be reliable, reflecting opinions at the time of its writing and subject to change at any time without prior notice, neither Pioneer Wealth Management nor any other entity or segment within the Pioneer International Group makes any representations or warranties as to the accuracy or completeness hereof and accepts no liability for any loss or damage which may arise from its use. The writer and the company are unaware of any conflict of interest at the time of publishing the above commentary.


About the Author

Mike Ellis

Mike Ellis

Director and Chief Investment Officer

Mike Ellis, originally from South Africa, joined Pioneer in March 2000 after working in the Private Banking & Trust industry in the UK. At Pioneer he was the group CFO for the better part of the last decade. Today Mike serves as a director and is the CIO.

Mike is a Chartered Accountant, a CFA charter holder and received his MBA from Tel Aviv University & Kellogg Business School. Mike is also an Oxford University Alumni having participated in the Said Business School's Global Investment Risk Management Program. In addition, Mike is a licensed Portfolio manager by the Israel Securities Authority.

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