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.

2. Intensified headwinds for globalisation

Global supply chains are likely to undergo significant structural change, as companies look to increase their resilience by accelerating technology adoption and diversifying production geographically.

However, a major retreat from globalisation would hurt productivity growth, with adverse effects on emerging markets that are more reliant on exports and foreign direct investment growth.

3. Asia to see rising headwinds, but still outperform over the long term

Asia’s economic growth was severely affected by COVID-19, and its recovery will be gradual. However, over the long term, Asia can continue to derive solid growth from: urbanisation and middle-income growth, investments in infrastructure and human capital, and deeper regional integration of economies and capital markets. Structural reforms, to support this growth as well as the adaptability of Asian economies, are key.

4. Industry consolidation to increase

COVID-19 has drastically weakened the finances of many companies, particularly small- to medium-sized ones. With investors showing a strong preference for companies with more resilient balance sheets and business models, smaller companies may be particularly vulnerable to consolidation. Large companies, with stronger financials and technological advantages, are likely to be better positioned to become even bigger and stronger.

These shifts will likely result in lower future returns and increased volatility in the markets, and navigating this environment will require vigilance, agility, and resilience for the journey ahead. At GIC, our approach is guided by our core values and two key investment principles – Prepare, not Predict, and Focus on the Long Term.

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