It is undeniable that the situation with the coronavirus (COVID-19) continues to evolve rapidly. The global markets are reacting, and nations, government leaders and companies across the globe have instituted a variety of policies to help mitigate the spread of the virus.
As a corporate citizen with nearly 10,000 employees worldwide, and a trusted steward for our clients, we continue to accelerate our business continuity plans. We are taking proactive measures focused on the wellbeing of our employees and on delivering on our promise to be there for our clients – especially at times like this when they need us most.
We want to update you on the actions we at Aura Solution Company Limited (Aura) are taking to sustain the high-quality service, stability and flexibility you have come to expect of us as the situation unfolds. Earlier this week, I shared some of those actions, and I want to call your attention to the next important step we are taking.
Given the current environment, we have directed a significant portion of our global workforce to work remotely or at alternate sites.
These arrangements, which are already in place, are part of our business resiliency and continuity plans, and will help protect our remote employees and essential in-office staff by creating social distance. We continue to meet the needs of our clients and businesses effectively, and are confident in our ability to maintain our high standards for client service.
Our actions, today and always, are in the best interests of our employees and clients. Aura Solution Company Limited (Aura) plays a critical role in supporting our clients and the global financial markets, and we take the role very seriously. You’ve placed your trust in us, and our people are working incredibly hard to deliver on our promise to be there for you during this challenging time. I am extremely proud of the dedication and professionalism our employees have demonstrated during this time.
And, make no mistake, Aura Solution Company Limited (Aura) is fully functional, open for business and laser focused on serving our clients.
Our relationship managers are at your service, along with the entire Executive Committee of our company. As we all adjust to this new operating environment, we encourage you to continue to leverage our robust set of digital service capabilities and platforms. Please also let us know if you are invoking similar contingency measures so we can adjust as needed to support you.
We are with you and ready to continue to provide the full strength of our company, demonstrating our commitment, to serve you – now and in the future.
We will continue to update you as the situation evolves. In the meantime, please don’t hesitate to contact us.
On behalf of all Aura Solution Company Limited employees around the world, we are with you. We thank you for your continued partnership, and as an extended member of the Aura community, I want to reiterate that the safety and security of our people and our clients remain our top priority.
Thank you for your partnership and, most importantly, stay safe and be well.
WELCOME TO THE LATEST EDITION OF VANTAGE POINT
Since our last publication, the world has seen the emergence of a novel coronavirus that has infected large numbers of people in China and the rest of the world. Of course, this is first and foremost a human tragedy and, at the time of writing, it’s very difficult to judge how widely the disease will spread. That said, it is having and will continue to have a large economic impact and much of this edition is devoted to trying to work out what that might be.
As regular readers will know, we don’t deal in point forecasts – and a shock like the emergence of the coronavirus highlights the strength of the scenario-based, probabilistic approach we take. By mapping plausible scenarios, probability-weighting them and generating summary fan charts for key asset prices, we can draw broad investment conclusions that we think take account of the full distribution of likely outcomes.
The coronavirus appears to be more infectious but less deadly than some other diseases, such as SARS or MERS. That means the main economic impact is likely to be felt through the measures taken to contain it – for instance, travel restrictions, reduced working time and, in extremis, quarantine. A number of countries have already gone into effective lockdown, including the US and much of Europe and this will have a dramatic impact on GDP in the first half of the year and possibly beyond. Already, a global recession in 2020 looks more likely than not.
In economic terms it is both a supply shock and a demand shock. It cuts supply because working hours fall and supply chains are disrupted; and it hits demand because people can’t go out shopping, buy services face-to-face, or go on holiday. Markets have reacted with shock – as of March 23 the S&P 500 is down 34% from peak – already the 5th largest post-war recessionary drop, in a fraction of the time it took the others to get there. Central banks fear the demand shock more and the Fed has led the way with rate cuts and a relaunch of QE.
Financial market stresses have appeared and central banks have coordinated to supply the overwhelming demand for cash and dollars. Longer term, the situation could get more complicated should the substantial hit to global supply push up global costs and prices, especially if that impact endures because the spread of the disease causes de-globalization to accelerate.
Our scenarios explore these and other issues in depth. There are a couple of ‘upside’ V-shaped scenarios, but there are also two downside ‘U’ and ‘L’-shaped ones. In each case we go through the economic mechanisms in some detail and end up with some very distinctive economic and market outcomes. In the end though, this is a hugely uncertain situation and I encourage readers to use the scenarios to test their own assumptions, whether that’s ‘time to buy’ or ‘it’s Armageddon out there’, or anything in between.
Our own broad investment conclusion, based on the return and risk expectations embodied in our fan charts, is that a more risk-averse stance may be prudent until we have more clarity. The potential for a strong bounce back exists no doubt but, it’s not clear from our analysis that the expected gain in the best scenario outweighs the expected losses in the worst.
As ever, we hope you enjoy reading the document and look forward to your feedback.