As the world grapples with how to deal with COVID-19, the unknowns about the virus are still a major concern. These will hamper the ability to produce a successful vaccine, notwithstanding that Covid-19 is a virus and there could be permutations within the virus. Finding a cure for a moving target could be difficult, although so far, it appears COVID-19 has not changed much.
Most parts of the world went into Lockdown (Phase 1): This was to reduce the spread of the virus and buy governments time to ramp up healthcare facilities and increase testing capacity. Generally, wherever Lockdown was slow to be implemented, infection rates have been a lot higher leading to more deaths as appropriate care capacity and facilities have not been available.
Lockdown is suffocating economies as most people have not been able to work normally. Therefore, an easing of restrictions and implementing a balancing act between restrictive movement and economic activity has become necessary.
The world watches keenly now as phase 2, the easing of hard and partial lockdowns, is being implemented. Success of relaxations will be based on disciplined infectious control (social distancing, etc). This will have to be directed by strict government guidelines and most importantly, a responsible and accountable attitude by society.
Thereafter, we can expect phase 3. The format will depend on the responses, reactions and lessons learnt from phase 2. This could be a variation of phase 1 limited to more vulnerable COVID-19 sufferers (such as the elderly) or further reductions or relaxations of movement in many different formats.
Different phases in dealing with the effects of COVID-19 will continue until a vaccine is readily available.
Producing a vaccine appears to be the biggest race in medical history with over 100 vaccines being developed and tested to date. The issue is how long will it take to find the right vaccine and how long will it take to produce it en masse? Experts say at best, 6 months to the former, and then a further 12 months to the latter. So, by end 2021, hopefully a vaccine will be readily available. We believe that with the continuous momentum of modern science, the probability of producing a vaccine is high.
Until then, the cost of restrictive movements, is difficult to forecast and there are wide economic predictions. A general view from the Economist magazine, is that economies will operate at 90% of normal capacity until a vaccine is available. However, this will vary per country including the size of the economic decline and recovery. In SA, Treasury forecasts a 6.1% GDP decline in 2020 and +2.2% in 2021, which will not take us back to 2019 levels.
Everyone has their opinion on how the world will operate post COVID-19. Our view is that the world will return much to the way we knew it, but as a better place. Humans are social beings and with the risk of the virus eliminated, social interaction will return but important reminders of the benefits of collaboration, co-operation and heightened humanitarian awareness, will lead to more considerate decision making with more responsible long-term planning.
South Africa has many challenges given its wide demographic diversity and lack of political stability. Hopefully, the country will take advantage of its strong intellectual resources to assist in navigating this period of unknown until a vaccine becomes readily available and we can all go back to normal life.
We maintain our view that investment markets will recover over the next three years, but uncertainty will continue until a vaccine is available, which will drive more market volatility. Year-to-date, the JSE All Share Index is down 12%, after recovering from a 35% decline to March. The recovery has all been driven by offshore counters, with local sectors such as Banks, Retailers and Property showing little recovery and being down 48%, 44% and 50% respectively year-to-date.
The biggest investment risk is to panic and sell your investments now, cementing in losses. It is critical to remain patient and participate in an eventual recovery.
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