World's Biggest Investors Fear Second Virus Wave Will Derail Stock Rallies --Financial News
By David Ricketts and Shruti Tripathi Chopra
Of Financial News
Some of the world's biggest investors are worried that a second wave of coronavirus could derail the global stock market recovery, with many anxious about further lockdowns being put in place as a result.
A poll of global investors, which manage more than $17 trillion collectively, found that 70% of hedge funds and long-only investors are "somewhat worried" or "very worried" about another outbreak of the disease, which has so far killed more than 320,000 globally and caused near economic paralysis.
Respondents to the survey, conducted by online opinion sharing platform Procensus, also put a 34% probability on their region entering full lockdown again. The poll found that 34% are now prioritizing data signals on infection rates and a second wave of Covid-19 cases, over news of a vaccine being developed.
More than 30% of investors said they don't expect a vaccine to be ready on a global scale until 2022 at the earliest. However, others are more optimistic with 22% expecting a vaccine will be available by the second quarter of 2021.
The Procensus poll comes as market commentators forecast a bumpy ride ahead for investors over the coming weeks, despite the S&P 500 recovering more than 30% since its low on March 23 and FTSE 100 stocks also making gains.
Central banks and governments have acted quickly to provide stimulus since the Covid-19 outbreak, taking unprecedented steps to support businesses and announcing giant bond-buying programs. That helped support equity markets leading to an uptick from the lows of March.
However, Procensus found investors' economic expectations have deteriorated since its last poll, anticipating a cumulative fall in nominal GDP of 10.1% compared to 9.6% on March 26.
Just under 60% of investors said they are "somewhat bearish" or "very bearish" on global equity markets over the next three months.
The outlook chimes with a recent fund manager survey from Bank of America, where 68% said the market was experiencing a bear rally--where stocks post short-term gains during a period of longer-term decline.
"The truth is that no-one knows what is coming next, in terms of how the easing of the lockdowns will pan out, how consumers will react, how corporations may or may not benefit and how the overall economy will do," said Russ Mould, investment director at online platform AJ Bell.
"It would be an unusual bear market that did not see a further dip, or even a re-test of the prior lows," he added.
Despite some recent signs of recovery, former Bank of England deputy governor John Gieve said markets had underestimated the full impact of Covid-19.
"The strength of equity markets is a puzzle in terms of economic fundamentals," said Mr. Gieve, who was at the Bank of England between 2006 and 2009 during the height of the financial crisis.
"They seem to be assuming a rapid recovery starting in Q3. That is possible but seems unlikely."
Mr. Gieve predicted the economy might not recover to pre-Covid levels until 2024.
"We really can't know whether we have seen the worst and will see the pandemic subside for the rest of the year and then disappear in the face of an effective vaccine," he said.
"It seems equally probable that we will have to live with social distancing for several years with all that means for transport, entertainment and the wider economy."
Agnes Belaisch, chief European strategist at Barings Investment Institute, said market watchers are "looking for an economic indicator of where the economy will be one year from now."
She added: "Part of the economic data being released is still about Q1 and the upcoming ones will describe a second quarter when consumers-workers stayed at home. The second quarter will be terrible in terms of data, reflecting no economic activity."