Vimal Gor: A quick take on government COVID-19 responses


A quick overview of government COVID-19 responses from Pendal Head of Bond, Income and Defensive Strategies Vimal Gor.

Watch this short video recorded at Vimal’s home office, or read the transcript below.




I’ve spoken at length over the last few months about the situation we’re finding ourselves in, in terms of markets and economics.

The bottom line is — the world economy was slowing and was susceptible to an exogenous shock that would slow us further.

Unfortunately, we’ve seen one of those.

The problem is, there’s no real precedent to the shock we’re seeing. Most crises we’ve seen over the last 100 years have been financial crises which have gone on to affect the broader economies.

If you look at the GFC, it was a housing sub-prime problem which caused a run on financial assets, which then fed into main street.

This one is very, very different. This is a health crisis which is affecting the economic growth patterns of so many economies, which are then feeding into the financial sector.

That’s why it’s very difficult to monitor and model and get an understanding where it might go in the future.

There’s no good time for a pandemic such as this to hit economies — but arguably this is one of the worst times you could have imagined.

The world economy was already beginning to slow — and that was on the back of three reasons.

Firstly, our strong belief is the Fed had over-tightened at the end of the last cycle and hiked rates materially more than they needed to.

Secondly, the de-leveraging we’ve been seeing out of China.

And thirdly the trade tariffs and the trade wars we’ve been seeing which is slowing global growth.

All of this comes at a time when there’s been significant monetary stimulus across the world, which has pushed risk assets up to unsustainable levels.

As the true impact of the pandemic comes through in economic data this has caused monetary authorities to respond as quickly as they can.

Unfortunately there was limited room for them to do so, because interest rates across the world are pretty much at zero anyway.

We have seen what they can do — as the RBA and other central banks across the world have slashed rates to zero and committed to leave them there for a prolonged period.

But the focus has to be on fiscal authorities — and we’ve seen massive fiscal responses across the world already.

We’ve seen huge packages out of Australia and the UK and the US — but we still believe these packages will continue in size and will get to near unimaginable levels, maybe 20% of GDP or north.

This is effectively the role of governments. Governments have to back-stop the economy and back-stop people’s livelihoods.

This is what we’re seeing in the UK —where they are effectively paying people’s wages for those who can’t go to work.

When you have to make a choice as a government between stopping the economy or saving people’s lives, there is only one choice.

You have to save the lives as quickly as you can and then do everything you can to try and help the economy through the situation.

And that’s what every government in the world is trying to do right now.

This is not the time to panic about your portfolios. This is a time to trust in your managers.

This is why you invest with us, and this is the period we’re supposed to help you and work for you.

Whether you’re clients or not, if there’s anything that me or anyone at Pendal Group can do to help you or your business in these troubling times, please do not hesitate to get in contact.

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