First Europe and now the United States have succeeded Asia as the epicenter of the outbreak. As casualty levels have sadly risen, most developed countries have adopted similar measures to limit the spread of the virus, and thereby protect medical capacity for the expected peaks in April/May. And governments have begun to implement monetary and fiscal stimulus at a scale eclipsing even the measures of the global financial crisis in 2008.
The capital markets remain volatile. We have seen record-setting swings both on the downside, and on the upside. Currencies are unstable. Real economic indicators point to recession already. Sentiment remains confused if volatility is a guide. The truth is few have a crystal ball. What is evident is that COVID-19 has impacted everything from the economy and social interaction, to the environment and the relative importance of the nation-state. This is history in the making.
Within SKAGEN, our response to these many challenges is playing out along three main lines of development: investing, clients, and strategy.
The investment team in SKAGEN is running hot. This is good. Market correction has broadened the investable universe significantly. While a focus on downside risk remains, strong companies with attractive upside are being brought into the portfolios at previously unimaginable prices; but care must be taken given the recessionary pressures ahead. Liquidity in the equity market remains high and the initial squeeze in the Nordic bond market is easing.
Client interaction by phone, mail and web is high. Many of you are seeking advice and this is exactly right. We have seen some limited de-risking amongst direct clients; but we have also seen clients returning to the equity market, having kept dry powder for just such a correction. Some institutional clients are investing, although capital controls are expected in some countries. Within SKAGEN we are very focused on delivering relevant and timely information, and I trust that our daily and weekly reports are helpful – please say if you need more.
At a strategic level, we are continuing to develop and model an escalating range of scenarios for the next 18 months to 3 years. In this we plan for the worst outcome, hope for the best outcome, and execute the most likely outcome. Capturing the key indicators will allow us to adjust our course to the scenario playing out. This requires good data access and good people; both of which we have. Clear proof that virus containment measures work and can be adjusted, and confidence in policymakers and their ability to manage periodic dips in economic activity, are critical to the recovery.
Despite the very real tragedies that are already touching a number of us, there is real opportunity and cause for optimism too. We are all experiencing a new normal in the way we live and work. Some of this will likely endure long after COVID-19 is a dim and distant memory. Businesses may fail; but many will flourish as patterns of behavior change. The potential of the digital network is being explored in exciting and constructive ways. A more sustainable lifestyle may be forced upon us. The opportunity is here; let's hope we take it. In the meantime, please stay well, observe government direction, and seek advice from SKAGEN if you need it.