Investors fear a new corona outbreak

Erasmus School of Economics

Investors fear a new corona outbreak which is noticeable on the stock exchanges.The focus is just as much on a second wave of infections as on the development of a drug.  Mary Pieterse-Bloem, Professor of Financial Markets at Erasmus School of Economics and Global Head Fixed income at ABN AMRO, talks about the subject in the BNR Beleggerspanel.

A second wave

Is the good sentiment lost again? Pieterse-Bloem believes not. The impact of a second wave of infections should not be underestimated, but it will not be the same as last March. A wave movement takes place on the market, with the second wave always appearing to have less impact. Mary Pieterse-Bloem also points out that more is at stake than just the fear of a new round of infections. On the one hand, the gloomy tone that the Central Bank of the United States, the Federal Reserve (FED), adopted. On the other hand, the mass protests taking place against racism. In addition to this all, the market increased tremendously for a number of weeks in May, far too rapidly compared to the economic damage caused. An incredibly unfortunate coincidence, says Pieterse-Bloem.

Buyback of individual bonds

One of the predictions of the FED is that the interest rate will remain at 0 percent until 2022. Corné van Zeijl, who works for ACTIAM, compares equity investors with spoiled children in his column. After unpacking a present, they already look at the next one. The message from the FED was clear, there is no more. Mary Pieterse-Bloem, however, states that there is more. This was evidenced by the FED's announcement to purchase individual bonds. The programme to buy corporate bonds was already in place, but this was mainly done through ETF. Buying individual bonds gives more flexibility to make the purchases they want, says Pieterse-Bloem. She doubts whether this really is the last instrument available, pointing to Japan, who increased the size of the loan package to 1 trillion while the interest rate remained constant. It turns out that more can be done over and over again, says Pieterse-Bloem.

Creative destruction

The corona crisis is also a time to let some companies go under. Not every business can be saved and by buying individual bonds more targeted choices can be made. This process of creative destruction is healthy, says Mary Pieterse-Bloem. The market itself also has a selective steering effect. Shares in the information technology- and healthcare sector were driven up by the market. These are sectors that have benefited from the corona crisis and that are rewarded for it. On the other hand, there are sectors such as transport and the real estate that are really struggling at the moment, concludes Pieterse-Bloem.

Professor

Mary Pieterse-Bloem

More information

Listen here to the BNR Beleggerspanel broadcast, 16 June 2020 (in Dutch).

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