Ninety One warns of lifting lockdowns too early

Lifting Covid-19 lockdowns too early may have a lasting effect on economies as a recurrence could cause more destruction across global markets, says newly listed Ninety One Asset Manager’s co-head for asset growth, Philip Saunders.

“We’re going to see a variably geometric type approach but I think now there is a sense of urgency to start to peel back the lockdowns to actually limit the economic damage that’s been done,” Saunders said on a call to investors on Monday.

“From a harsh dispassionate point of view, there is no perfect solution. There is a tendency to overreact a bit in the first instance, and I think that is being gradually recognised,” he said.

Governments around the world have imposed lockdowns in a bid to contain and manage the spread of the coronavirus. Global markets have as a result seen a major sell-off spurred by fears related to the virus.

SA, which has 1,655 confirmed cases of the virus and 11 deaths, is also under a 21-day lockdown that is expected to end on April 16.

Almost 1.3-million cases have been recorded worldwide and more than 70,900 deaths from the virus.

Saunders said there was going to be a move to progressively get people back to work, simply because the economic pain of not doing that was probably greater than the risk of going back too quickly.

FROM A HARSH DISPASSIONATE POINT OF VIEW, THERE IS NO PERFECT SOLUTION

Ninety One has a more than 50% exposure to SA and UK, with £121bn (R2.3-trillion) under management on September 30 2019, making it the biggest asset manager in SA. It was listed on the JSE and LSE on March 16.

Saunders said the key realisation was that the current market rout was a crash and not a typical bearish environment.

“Prices got driven to levels that were a function of chronic illiquidity and there was uncertainty about whether the monetary authorities, particularly the Fed, were able to respond appropriately.

“This is a sort of shock to growth — GDP is going to contract sharply; it’s going to take time for GDP to reattain the levels it would have been running at, and that obviously has implications for corporate earnings and government deficits and so forth,” he said.

He lauded the reaction of monetary authorities and governments in helping to curb the impact of the virus. He is expecting economic recovery to kick off in June.

Central banks around the world have intervened to fight the fallout, with the Federal Reserve and Bank of England slashing interest rates.

The SA Reserve Bank cut interest rates in March by a higher-than-estimated full percentage point to 5.25%. It also announced liquidity measures to help support the economy.

While China’s production is expected to recover better than forecast as a result of Asia’s healthier economic fundamentals, Western markets would have to bump up their modest levels of growth, he said.

For emerging markets, it depends on their underlying fundamental conditions, he said.

“I think we’ll see much more casualties from this and I think that we will see debt rescheduling in a number of countries. We will see significant divergence in terms of the performance of different emerging markets coming out of this,” said Saunders.