So what will a post COVID-19 world look like for investors?
World Economic Forum recently carried out a risk analyst assessment on the likelihood, or probability, of major risks playing out in the wake of the 2020 pandemic.
Predictably, economic risks rank the highest over the next 18 months in a post COVID-19 world, according to a World Economic Forum survey
The survey reveals that the economic fallout in a post COVID-19 is at the top first of the five risks identified with the economy scoring 10 risks. Societal risk comes next with 9 risks, then geopolitical with 6 risks, followed by technological 4 risks and then environmental with 2 risks noted by the survey.
But let’s zero in on those 10 identified economic risks in a post COVID-19 world which add flesh to the bones of a recent piece we wrote entitled, Post Pandemic Macro Trends.
“Predictably, economic risks rank the highest over the next 18 months in a post COVID-19 world, according to a World Economic Forum survey”
With soaring unemployment rates around the world, 68% of those experts surveyed are concerned about a prolonged recession of the global economy.
As we wrote previously the V_shaped recovery view is foolhardy.
The great global lock-down, the enforced closure of business for three months, will see massive business closures, bankruptcies, and mushroom of vacant commercial real estate, foreclosures, and bad commercial/real estate loans. The crux of the 2008 financial crisis, a crisis in the subprime mortgage market will play out again, but this time it could be more acute and widespread. The blow-up of commercial loans, junk bonds could happen, if and when the central banks decide to throw in their towel with its bond purchases. My fifty cents worth is that the scope and the magnitude of this crisis will be so great that it could push the fiat system to the threshold, thereby forcing the central banks to capitulate with their asset purchase program.
“With soaring unemployment rates around the world, 68% of those experts surveyed are concerned about a prolonged recession of the global economy”
Already we are seeing signs of the central banks tapering, as the debasement of currencies is underway. The BoE and the Fed have shifted their policy toward targeting consumption rather than continuing to blow more liquidity into the prevailing multiple asset bubbles.
But consumption is not driven by liquidity, it is driven by human behavior. The naked ape is a tactile, sociable animal, complex to understand and at times completely unpredictable. The pandemic paraphernalia of social distancing, face-covering is killing the “feel-good factor” which drives consumption. So I don’t see consumption recovering to levels seen before the pandemic until these visual symbols of fear are removed.
“The post COVID-19 world could negatively impact global investment and it is a slow down in investment that causes a recession, an economic decline in economic activity” – Win Investing
Post COVID-19 world with its economic risks could see a surge in bankruptcies (big firms and SMEs) and a wave of industry consolidation, according to 56% of experts surveyed by World Economic Forum
Almost half of those surveyed, 49.3%, see high structural unemployment prevailing (especially youth) in a post COVID-19 world.
Other macroeconomic risks in a post post COVID-19 world include a weakening of fiscal positions in major economies with 45.8% of those surveyed worried about this risk
More than a third of those surveyed, 38.0% are worried about the economic collapse of emerging markets or developed economies. Moreover, others surveyed see a collapse in global supply chains with 42.1% believing this is likely to happen.
Another 20% surveyed think that a sharp increase in inflation is likely to play out globally.
The post COVID-19 world could negatively impact global investment and it is a slow down in investment that causes a recession, an economic decline in economic activity
A total of 17.9% of those surveyed believe that there will be massive capital outflows and a slowdown in foreign direct investment.
A sharp under funding of retirement due to pension fund devaluation was cited as another risk in the post COVID-19 world with 17.6% of those surveyed worried about this occurring.
In light of the economic risks, 38% of the survey respondents anticipate this may cause these markets to collapse in a post COVID-19 world
“The post COVID-19 world could also result in a greater national and geopolitical risks going forward” – Win Investing
Social anxiety risks are also high in a post COVID-19 world
A total of 23% of those surveyed see Governmental retention of emergency powers and/or erosion of civil liberties and another 23% believe there will be a fresh surge in inequality and social divisions.
The post COVID-19 world is also likely to see a rise in healthcare costs.
A total of 14.7% of those surveyed believe that the pandemic will continue to strain the health care system which could also make healthcare cost prohibitively expensive for most people.
The post COVID-19 world could also result in a greater national and geopolitical risks going forward
The current status quo during the pandemic is anything but normal and this is putting a strain on people’s mental well-being. The mentally vulnerable, which could be any one of us during difficult periods of our lives, could be pushed over the edge. The rise in unexplained acts of madness around the world could be due to a rise in mentally disturbed people during these extraordinarily difficult times that we live in. So a rise in mentally troubled people could pose a national risk going forward, Moreover, an increase in cybercrime has also been detected. The FBI has registered a 400% increase in cybercrime since the start of the pandemic.
The post COVID-19 world could also result in greater geopolitical risks
Vulnerable foreign nations whose leaders fear an uprising from a hungry desperate population could pose geopolitical risks as their leaders exteriorize their frustrations by threatening their neighbors with war.
On a positive note regarding a post COVID-19 world. Maybe less economic activity means mother earth can cleanse itself. The young survivors of the pandemic will inherit more resources, cleaner earth, and live under a new world order. What ever that may be. Perhaps we are witnessing a great reset, a systemic change.