The way back

Following the major downturn in March, stock markets rebounded in April. Now, the gradual re-opening of several economies is being planned. This will test both disease-containment measures and stock exchanges.

In the month as a whole, the US S&P 500 Index climbed 12.8 per cent measured in USD, while the European Stoxx 600 Index rose by 6.7 per cent measured in EUR and the Nordic VINX Index went up 6.4 per cent measured in NOK. For the Oslo Stock Exchange (OSEBX), the upturn stopped at 9.6 per cent.

Gradual reopening

Most European countries are now preparing to ease restrictions and reopen key parts of their economies. While a lot is happening in the first part of May in Europe, there are greater expectations of restrictions being eased towards the end of the month in the USA. At the same time, GDP growth is expected to fall sharply in the second quarter as a result of all the corona measures. It still looks as if there will be significant recovery in the third quarter, although the estimates have never been more divergent.

Faith and hope

The uncertainty is naturally linked to the speed of the reopening and the danger of a fresh outbreak. In addition, the development of a vaccine and herd immunity are clearly uncertain factors. The G7 countries are now expected to have negative GDP growth of around 4 per cent in 2020. Before the pandemic, positive growth of 1 per cent was expected. For 2021, economists have correspondingly increased the estimated positive GDP growth from around 1 per cent to almost 4 per cent. The unemployment scenarios show approximately the same pattern, lifted by faith in most jobs not disappearing as a result of temporary shutdowns.

Soaring national debt

The support packages from central banks and authorities will also help to increase activity in the second half-year. At the same time, many countries are expected to have an unprecedented budget deficit, especially if loans, loan guarantees and infusions of capital are included. Calculations for Germany and Italy show that their budget deficits equal around 30-35 per cent of GDP. Money printing is necessary in the short term, but is naturally not sustainable in the long term.

The road ahead …

The reopening will test large and small communities. As a fund investor, you must be prepared for more turbulent periods while we gradually return to normal. Such periods should be used to buy some extra fund units.

"Science is the practice of failing repeatedly but learning as you go"
Hilary Mason