The COVID-19 crisis, which has triggered an economic crisis and significant turmoil, has accelerated several major shifts that could shape the global investment landscape going forward:
1. Uncharted policy waters – high debt, low interest rates
As the world emerges from this crisis, the debt burden will climb even higher still, as companies and governments take on more debt to weather the economic slowdown.
With policy interest rates at or already below zero, governments and central banks have turned to more unconventional policy measures to support the economy, and are also willing to accommodate periods of above-target inflation. Given limited policy room to cut rates, there is a bigger role for fiscal stimulus, alongside a greater need for coordination of monetary and fiscal policies.
These shifts in policymaking can change the investment environment in two ways – increased risk of higher inflation over the medium term, and the larger role of currency moves in asset returns.