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Round-up of Corona investment news: recession seems inevitable, co-working sector hit

March 24, 2020

The Netherlands and most other European countries are expected to fall into recession this year due to the impact of the coronavirus, Amsterdam-based institutional property investor Bouwinvest says in a press release (see attachment). In the Dutch market, the real estate sectors hit hardest are those most dependent on discretionary spending. These include retail – excluding basic daily needs – hotels and restaurants. Sectors where short-term leases are common, such as co-working offices, are also likely to feel the impact hardest, Bouwinvest concludes.

A recession in the US is inevitable, but the unprecedented crisis measures announced this week by the Federal Reserve (Fed) could prevent the economy from falling into a depression, writes Tiffany Wilding, North America economist at the world’s largest bond investor Pimco. On Monday, the Fed announced ‘unprecedented’ crisis measures to mitigate the economic impact of the corona crisis. Wilding: “The US economy will enter a recession this year, but the Federal Reserve’s 23 March announcement that it will buy an unlimited amount of Treasury and mortgage-backed securities (MBS) and introduce numerous facilities aimed at stabilising the financial system may help avoid longer-term damage and accelerate economic recovery.”

The stimulus programme in the US may prove ineffective, however, says Philippe Waechter, Chief Economist at Ostrum Asset Management, part of Natixis Investment Managers, in his blog. “The type of crisis we are encountering is characterised by severe supply constraints. Simply ploughing money into providing purchasing power is not very effective, particularly if California is not the only US state to adopt lockdown measures. Congress is currently waving through measures that would ease the situation for companies, although they are not on a par with moves made in Europe. The immediate effect of this situation is a stellar increase in public deficits, which – in light of expectations on governments’ spending pledges – will probably surge beyond 5% of GDP. So public debt is set to soar swiftly,’ Waechter concludes.

Annacarla Dellepiane, head of ETF Capital Markets at pension investor Legal & General Investment Management (LGIM) sees that index trackers (exchange-traded funds or ETFs) have passed their first real stress test with the corona crisis. Sceptics have long feared that ETFs would be difficult to market during a bear market. These fears appear to be unfounded. “We are now in a bear market and ETFs are as resilient as we expected,” concludes Dellepiane.

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