The world after COVID-19

As the COVID-19 pandemic rages with record levels (both highs and lows) of market volatility, it may be healthy for both the mind and your personal finances to look slightly beyond the short term, towards tomorrow’s world. First, the obvious disclaimer: the unexpected happens more often than we think. But sometimes the destination is more readily understandable than the journey. So let’s try to figure it out.

One of the features of the world that is emerging will be a reprioritisation by countries towards greater resilience. Often driven by the objective of increasing or protecting their economic and military power, many countries could refocus on the need to secure their access to essential goods and services, sometimes neglected or entrusted to outside powers. These services include health security. If they want to maintain their legitimacy, countries will have to increase the financial efforts devoted to health systems, whatever the cost. For investors, this may have financial consequences. Research laboratories, the pharmaceutical industry and the medical world as a whole – including real estate components (hospitals, retirement homes, etc.) – could benefit from this.

In a world that has become suspicious of globalisation, one of the priorities could involve controlling the means that enable a country to survive in the event of a breakdown of global supply chains: energy, basic food, weapons, transport networks, telecoms, IT. From a financial point of view, these trends may be accentuated in the portfolios of agile asset managers, even leading to the creation of funds dedicated to these themes.

Strengthening a country in the event of crisis also involves better management of its debt and even the capital of its national companies. The beginnings of such a trend are already starting to emerge. With their new unlimited bond purchase programmes, central banks like the Bank of Japan, the ECB and the Fed will be among the major creditors of their own countries (or of the eurozone for the ECB). Perhaps one day central banks will hold – in the same way as the Bank of Japan – a significant proportion of the equity of the companies in their country or countries, as a form of indirect nationalisation. To some extent, this would protect investors from uncertainties due to external financial conditions, likely at the cost of depressed interest rates (since rates would mainly be set in the interest of the borrowing country) or lower returns on equities (because the risk premium would be artificially compressed).

As such, this crisis could lead to a reconfiguration of global economic governance; perhaps a return to a certain activism at country level and regionalism are on the horizon. This would have been unthinkable only a short time ago. Having learnt from this crisis, maybe this new world will be less fragile. If that is the case, the current tragedy will not have been in vain.