Fear of missing out
plays are famous for conveying HAROLD PINTER’S meaning in what’s left unsaid - the unspoken voice. It can feel similar trying to extract information from current business surveys. Ten weeks into the lockdown process (more than two billion people in the world) the surveys convey almost nothing but complicated messages.
Take the UK for instance: Four in five businesses remain trading, with one in five (18 percent) pausing operations. A similar proportion of firms (79 percent) have applied for the Coronavirus Job Retention Scheme. Yet what stops this being useable data are the silent voices, i.e., the business owners who don’t answer surveys (just one-quarter responded). Until we know the intentions of all, the surveys cannot help to draw longer-term implications on job losses and firm restructurings.
Also, there’s almost nothing in emerging market countries indicating that the curve is flattening, independently of the reopening strategies already announced in some countries. As Bank of America Merrill Lynch analysts argued, there is no emerging market central bank with enough credibility to emulate the Fed and stabilize asset markets. For emerging market countries, the combination of weaker external demand, low commodity prices and the direct impact of the pandemic on countries with underdeveloped health systems looks like a perfect storm.
Looking beyond the crisis, the IMF is optimistic of a V-shaped recovery and forecasts global growth of 5.8 percent in 2021. •f course, this is just the IMF’s best guess as of April. The recovery will be wholly dependent on how quickly (or slowly) the world can emerge from the crisis. It’s almost time to think about the issues that lie ahead even as the coronavirus (hopefully) disappears in the rear-view mirror. There’s the coming wave of bankruptcies, the hit to potential economic growth, the huge accumulation of debt in developed countries, the likely need for debt forgiveness in many emerging market countries, and much more.
Market analysts think that it takes a huge leap of faith to think that riskier assets, such as currencies, can stay strong through this maelstrom of risk-off threats. •f course, it is possible, just like the aftermath of the global financial crisis in 2008, that risk assets continue to rise, fed by the monetary largesse of the central banks and, perhaps this time, more significant and long-lasting fiscal support. The latter could be quite crucial as many policymakers seem to know that a mistake in the post-global financial crisis years was to return to fiscal austerity too quickly. Could policy support help turn a fear of missing out (F•M•) rally into a ‘real’ rally that does not fizzle out as soon as some of these coronavirus-related problems of debt, weak growth, etc. start to materialize? •nly time will tell.
So, while the short-term outlook for risk assets might be positive as investors ride the F•M• wave, the longer-term prognosis might not be as good as the chickens come home to roost on some of these structural problems that the coronavirus has either created or, more often, exacerbated.