In conversation with Jeremy Gardiner about the virus, the economy and the ‘New Normal’

”A bend in the road is not fatal, unless you fail to make the turn!” – David Newman

The Octagon team and its clients had the privilege to attend an excellent webcast, co-hosted with Ninety One Asset Management, presented by Jeremy Gardiner and Siobhan Simpson.

Some powerful insights were shared with the almost 150 participants on where we are, what we can expect and how our investments are performing through this period.

While the future remains uncertain (but then, when was the future ever certain), the “New Normal” that we can expect on the other side of this will still present opportunities for those ready to embrace the changed world we will be living in.

Some highlights from Jeremy included:

On the virus:

While South Africa was ‘late to the party’ compared to many other economies, we have had the benefit of their experiences and have learnt from them. The lockdown was an unfortunately necessary response, and the impact on slowing the spread of Covid-19 has certainly made a warranted difference – expectations are for our peak infections to come around July/August. Until then, we can expect a staggered loosening of restrictions, each with an evaluation of how each stage of greater freedom affects the rate of spread – something like ‘rolling lockdowns’ at different levels of stringency are a potential reality across the world.

Emerging markets have broadly seen a slower spread than developed markets due to three factors namely, the lower median age of the population, the TB vaccine and the predominantly warmer climates. Earlier and more stringent responses from governments in the emerging world have further resulted in slowing the spread than that compared to the developed world.

A vaccine remains the elusive factor – long lead times, human trials and relatively short recovery times in patients who do recover make the development and testing of a vaccine difficult.

On the economy:

Economies around the world have been hard-hit by the impact on both supply and demand. With the majority of the world in some or other form of lockdown, economic activity has ground to a virtual halt. We can expect the global economy to contract by 2% to 3% this year, with South Africa seeing a greater contraction of closer to 6% or 7%. Until consumers are granted more freedom of movement, and businesses have the ability to resume operating, very little economic recovery is possible.

The stimulus package announced by President Ramaphosa this week is very much in line with those of other countries, at around 10% of GDP. Thankfully, the impetus for economic reforms and restructuring our economy towards growth are clear and we can thank our lucky stars that we have President Ramaphosa at the helm and not our previous administration. The “Big Three” players – President Ramaphosa, Minister of Health Dr Zweli Mkhize and Reserve Bank Governor Lesetja Kganyago – have led us from the front and have seen their respective political currency strengthen. Long may this continue!

On the markets:

After the sharp fall in early March, markets have rebounded strongly in a “V-shaped” pattern, yet the real impact on economies remains to be seen. We expect to see more of a “W-shape” to markets over the short-term, with a potential pullback from the levels we are seeing now, before the eventual recovery. As has been seen time and again through history, markets and currencies recover ahead of the economy – it is still best to remain invested through the cycle and not try to time the bottom.

On the ‘New Normal’:

While nobody is quite sure what the world will look like when we emerge from our confinement, it is certain that many things we took for granted as normal will either take a long time to return, or will vanish forever. When will you feel comfortable enough to climb onto an aeroplane, go with friends to a crowded pub, or simply shake hands with a stranger?

Remembering that many of the world’s greatest business brands were founded during a recession, gives us hope that there will still be both commercial and investment opportunities – we just have to adjust the way we look at things!