Just when we thought the UK was easing out of lockdown, the sudden spike in Covid-19 cases has prompted the re-introduction of certain social distancing measures.
Unlike before, these new measures are coming into force at a time when the government is also attempting to bring about the country’s post-pandemic economic recovery.
The “new normal” is well and truly here, and recent weeks have shown us that the fight to defeat Covid-19 still has a long way to go.
In situations like these, it is important to put things into perspective.
The government naturally fears the financial repercussions that will arise from economic stagnation. That’s why Chancellor Rishi Sunak has been tampering with taxes to promote investment and spending activity.
Of course, investors will likely be acting with added caution in mind for the foreseeable future.
The number of unknowns (vaccine development timeline, chances of a second lockdown, etc.), along with the performance of different asset classes and markets in recent weeks, shows that there is a mixed outlook for the future. Some are substantially more optimistic than others.
To explore this further, HYCM recently commissioned research to discover which assets investors are looking to buy and/or sell over the next 12 months.
After surveying over 900 investors, the resulting figures show just how Covid-19 has affected investor’s portfolios – the key findings of which I have analysed below.
An ongoing retreat to cash
At present, the most popular asset class among investors is cash savings.
Of those surveyed, 78 per cent identified as having some form of savings in a bank savings account, followed by stocks and shares (48 per cent) and property (38 per cent).
The government naturally fears the financial repercussions that will arise from economic stagnation.While not entirely surprising, when viewed in the context of investor’s future investment plans for the coming year, it becomes evident that the majority are taking a cautious approach by reducing their risk exposure.
Just under a third (32 per cent) said they intend on placing more money into their savings account – by far the most common investment strategy among those that we surveyed.
After this, just over a fifth (21 per cent) plan on purchasing more stocks and shares, 17 per cent intend on investing in property, and 17 per cent are looking to purchase fixed interest securities.
When asked about the impact Covid-19 has had on their portfolios, 43 per cent stated that they had seen their assets decrease in value due to the pandemic.
However, a surprisingly high 73 per cent said they are not planning on making any major investment decisions for the remainder of 2020.
It’s not all about cash
The figures above show that investors are evidently still concerned about how the rest of this pandemic will unfold. Retreating to cash savings reflects a general desire to reduce risk exposure in the medium-to-short term, even as a number of safe-haven assets report record-breaking gains.
Gold, for example, surpassed $2,000 per ounce in August for the first time in history.
Although this rate of value growth has slowed in recent weeks, its spot price is still 30 per cent more than it was at the beginning of 2020.
With the US presidential election and Brexit on the horizon, some predict that the associated uncertainty will fuel a second surge in demand for this precious metal, driving its value close to $2,500 by the end of the year.
Among the unprecedented levels of political and economic uncertainty there are always opportunities for investors and traders to achieve positive returns on investment.
The key is finding the asset classes that are able to walk the line between returns and security, as well as identifying the right time to invest.
While cash savings undoubtedly provide the security that investors are seeking, the total value of their money in cash savings is set to decrease in the long-term in this low interest rate environment.
Looking ahead
Based on what I have been witnessing in recent weeks, investors are hoping that the forecasts for a V-shaped recovery will remain in place; based on upcoming vaccine hopes.
There are a number of hopeful candidates in the development pipeline and one or more of these could help re-establish social norms.
The issue, however, is that this exact hesitancy regarding investing and spending will only lessen the rate of economic recovery, as markets require the financial stimulus needed to help facilitate a post-pandemic resurgence in activity.
Here we suddenly find ourselves in a catch-22 situation.
Looking ahead, there seems to be two set outcomes.
Among the unprecedented levels of political and economic uncertainty there are always opportunities for investors and traders to achieve positive returns on investment.The first is a decline in Covid-19 cases, followed by an economic downturn as the market naturally corrects itself, itself followed by a return to relative economic normality.
In the second, a new spike in cases and the reintroduction of more strict lockdown measures delays a recovery for the foreseeable future.
Currently, it looks as though the first of these scenarios is playing out, but one cannot be entirely sure just yet; especially with the chance that a vaccine enters into the narrative and provides new confidence for a return to confident growth.
Erring on the side of caution will remain a common strategy for most.
However, in these uncertain times, investors should always consider all the opportunities available to themselves instead of merely locking up their assets in cash savings.
Doing so may risk the long-term value of their portfolio and could even potentially further delay the UK’s economic recovery.
A commodity like copper, which will play a critical part in the new green technology revolution, offers a good medium to long term bullish outlook for those looking for potential winners in a new age of digitisation and renewable energy.
Giles Coghlan is chief currency analyst at HYCM
