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When the micro(biological) trumps the macro

09 April 2020

The UK economic outlook looks challenging as the nation continues to deal with the coronavirus outbreak. Even prior to the introduction of last month’s national lockdown, the trajectory for the UK was starting to slip. GDP figures for February, published on 9 April, show a small decline of 0.1%, mainly driven by a big drop in construction as flooding and storms hit during the month – this was against an expectation of a small but positive rise of 0.1%.

The outlook for economic data remains bleak but that does not necessarily translate into poor market returns. Normally economic data would carry more weight but the combined global stimulus is helping (artificially) to lift all boats globally and UK risk assets look increasingly cheap when compared to other regions. Admittedly part of that cheapness may reflect the ongoing Brexit trade uncertainty and getting a sense of full earnings transparency is nigh on impossible during this sudden global economic stop. However, returns clearly offer more long-term upside when starting on depressed earnings multiples than they ever could do when starting from a higher level. Assuming the coronavirus outbreak is brought under some level of control, it is possible we could see a rapid bounce in economic activity and, correspondingly, stock prices. Unfortunately, the outbreak is not yet under control.

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The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development.