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The duration of the epidemic will ultimately determine the shape of recovery. An uneven recovery and subdued inflation (barring any persistent supply shock) will call for a prolonged accommodative policy mix, in either monetary or fiscal policy. The merger of the two has to be careful monitored in emerging markets.
Head of Emerging Markets Macro & Strategy Research
Developments on the virus and vaccine front and the US election are hot topics. Markets are pricing in a glass-half-full scenario, despite the still-alarming infection numbers on the virus front (second wave in Europe and record new cases globally). The interconnection of the three cycles — virus, real economy and financial — continues, but the virus transmission mechanism is changing. The ability of the virus cycle, which is the most critical of the three cycles, to affect the other two is now lower vs the beginning of the year.
Pascal BLANQUE, Vincent MORTIER
There was a substantial decline in Q2 earnings but they turned out to be better than expected; their decline being ultimately less pronounced than during the Great Financial Crisis (GFC) of 2008-2009, whereas the current recession is much more severe. This surprising resilience is due in large part to sector aspects. Financial stocks have generally proved more resilient than during the GFC. Furthermore, the Healthcare and Technology sectors have emerged remarkably unscathed. The other side of the coin is that, without these last two sectors, the decline in earnings would have been much more pronounced. Given the revisions made and the achievements in H1, barring a new general lockdown episode, most of the consensus adjustment seems to be behind us. However, the valuation debate - excessive or not - is still far from being resolved. The duration of the crisis will be the key parameter in responding to this question.
Senior Equity Strategist
The global outbreak of Covid-19 has brought the world and its economy to a standstill, highlighting the importance of sustainable and resilient infrastructure (healthcare, water, power, telecommunications). Countries with fragile infrastructure have less capacity to handle crises, so they will need to increase their infrastructure investments. This is especially crucial in the context of health security and rapid urbanisation.
Global Head of EM
Two major drivers are shaping the landscape for EM countries: Covid-19 and oil dynamics. We are mindful that current events will have very significant negative effects on the economic outlook for EM this year, leading many countries into recession. However, for those experienced in financial markets, shocks are nothing new, particularly within EM.
Global Head of EM