The emergency airdrop of fiscal and monetary support provided to fight back in the battle against the coronavirus impact on the global economy continues to prevent further dives in the world markets. In fact, some markets have even rallied over the past weeks with the FTSE 100 recording its best week in 11 years after surging nearly 8%.
There is a need for reality check and a cool head for those who think the ‘bottom’ is approaching for world markets after weeks of vicious declines. For all the declines seen in world markets, some equity markets are only just approaching 2012 level despite the economic fallout of this crisis being billed as far worse than the Global Financial Crisis of 2008.
Should the situation get further out of control, and there is still a stronger probability of this being the case than a miraculous cure developed anytime soon, there is a likelihood that world equity markets could decline considerably further. The Economist Intelligence Unit (EIU) were quoted as saying, ‘The world economy already faces an economic downturn worse than the Great Depression, but this could be followed by another, possibly much worse downturn’. In other words, a double recession could be on the cards, driven by a debt crisis from governments of whom already had weak balance sheets prior to them creating cheap money from central banks.
In reality, the global economy has never really recovered since 2008. As mentioned above, cheap money from central banks has papered over the cracks since the Global Financial Crisis but this has ultimately led to a huge bubble. Over 70% of the companies listed on the Dow Jones have never made a profit. Tesla, the largest US car maker by market capitalization, has never made a profit. Unprecedented levels of debt and increasing inequality are not signs of a healthy or well-functioning economy.
At this point, as holistic financial planners we see a far greater benefit from being able to protect your existing assets and effectively plan going forwards as opposed to rolling the dice with this situation. Afterall, these times are unprecedented.
Written by Greenfields Financial Management Ltd.
This article is for information only and should not be treated as advice. No action should be taken in respect of this article without independent financial advice. This information represents the opinion of Greenfields Financial Management Ltd. only.