As we near the end of a third week in lockdown, headlines around panic buying and shortages of toilet-roll have been replaced with stories of families being creative, communities coming together and praise for the NHS. In a video message Her Majesty the Queen encouraged solidarity in the face of this invisible enemy.
It is inevitable that we start wondering how long this will last and what life might look like in the future. At this stage there are no certainties and a wide range of possibilities. But we do see rays of light and our working assumption is a positive outcome.
Unfortunately, the number of people being affected by the virus continues to rise. With testing issues in most countries, the number of reported cases has questionable value compared to the number of casualties. We should expect to see higher numbers in some countries (like the USA) – given differences in the size of the population and the respective strength of health care systems.
To allow us to compare data between countries of very different sizes, the chart below shows casualties on a ‘per capita’ basis:
It would appear that containment measures in Italy are working and the virus is being brought under control. This is backed up by the latest data from Spain (not shown). The UK is around two weeks behind Italy, so if we follow the guidance, ‘Stay home, protect the NHS, save lives’, then we can start to look forward.
Here are three possible future scenarios, based on the spread of the virus, public health responses and the effectiveness of economic policies:
In the most optimistic scenario, we could see the virus contained over the coming few weeks and lockdowns eased. Indeed, there is already some chatter about this with Italy, Norway, Denmark and Austria beginning to look at easing the measures imposed. Denmark is taking a cautious approach by reopening schools on April 15 while Austria is allowing small shops, hardware and gardening stores to reopen after Easter.
This is promising and if we see similar announcements from other countries, markets could well be higher in the short-term.
However, as the Danish Prime Minister Metter Frederiksen said, easing measures are contingent on the virus numbers remaining stable and it is likely that some restrictions will remain in place for months to come.
The worst-case scenario is a failure of public health interventions, leading to either a prolonged lockdown period or a series of lockdowns until either a vaccine becomes available globally or ‘herd immunity’ is established.
This would entail significantly greater economic cost and would put impossible pressure on many companies. Clearly some industries are more likely to survive than others. There have been many comparisons made to both the Spanish flu in 1918 and to the Great Depression. There are several reasons to be more hopeful than that.
Firstly, our scientific capabilities today are unrecognisable by comparison to those of 100 years ago. Within a matter of weeks, the generic code for the virus was available. This allowed the US company Moderna to smash the record for the fastest time between identifying a virus and beginning human vaccine trials – just 42 days. A vaccine needs to pass all the necessary tests before it can be mass produced, but this is an important development.
Secondly, we went into this crisis with fewer financial imbalances than historic crises and growth was accelerating as trade war induced uncertainty was falling. In addition, the social safety nets in much of the developed world are far stronger today than they were 100 years ago.
Finally, the speed and scale of reaction by central banks and governments around the world has been significantly faster than any historic crisis with multiple trillions of dollars of support for workers, businesses and financial markets.
All of this should mean that we are able to avoid the worst of outcomes.
There is still no vaccine and little evidence of successful widespread antibody testing. This means we cannot yet know the extent to which the virus has already spread among us or whether those with antibodies are of sufficient number to be confident of ‘herd immunity’, nor indeed how long the antibodies remain effective after infection.
Given how far we have come and how much economic damage has already been suffered, governments are likely to err on the side of caution.
This probably means a gradual easing of restrictions to minimise the risk of a second wave. Through a national programme of antibody testing, those with immunity could be given permits for greater freedoms. Nevertheless, it will be a long time before we get back to ‘normality’ – which we took for granted so recently.
What are we doing?
We are monitoring healthcare data to guide us further. Portfolios are well positioned for a slow and gradual recovery, with a bias towards companies that are more able to endure challenging economic environments. Changes will be made if data or events point us to alternative scenarios.
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