Top investor predicts ‘near total shutdown’
ONE of the nation’s most successful investors, Magellan Financial chief Hamish Douglass, says a $600 billion government stimulus package may be required to hold off the worst economic impacts of the coronavirus pandemic.
The billionaire investor and chief of the nation’s leading global investment fund has warned a “near total shutdown of the global economy” looms which could result in a depression.
“The COVID-19 virus is a fast-moving and fluid situation,” Mr Douglass said in a note to investors.
“The most likely outcome of the efforts to contain this health emergency is a near total shutdown of the world’s economy over the next two to six months.
“This is likely to lead to a near total collapse in demand for many – but not all – businesses over this period.”
Mr Douglass warned this “could prove fatal” for many small businesses, as well as those which have high levels of debt or fixed costs.
Companies which are most exposed to the outbreak include banks, oil and gas producers, airlines and other travel-related businesses and property trusts, he said.
The veteran investor said the economic impact of COVID-19 ranged from a short, sharp downturn and recovery to, “at the pessimistic end of the scale”, a depression.
The shape and speed of the economic recovery would depend on government actions, Mr Douglass said.
“The likely size of the fiscal response required to head off the worst outcomes is unprecedented and potentially could be up to 20 per cent to 30 per cent of GDP,” he said.
For Australia, that would mean an injection of something like $400 billion to $600 billion.
“Unfortunately, there will be some countries – particularly some emerging markets – that might be unable to respond with sufficient force.
“Fortunately, major countries such as Australia, Canada, China, France, Germany, Japan, the UK and the US are in strong positions to respond to this crisis.”
Mr Douglass said Magellan had responded to the crisis by increasing the cash levels in its global equity portfolio from 6 per cent to 15 per cent, all of which was held in US dollars.
Mr Douglass manages more than $100 billion in investments mainly in overseas companies.
His funds have consistently beaten the broader market.
Magellan’s global equities fund, which is listed on the Australian Stock Exchange, has returned 16.3 per cent over the decade to June against a 12.3 per cent benchmark rise.