The state of the economy and markets — April 2020

Before corona virus

1. Monetary bases globally were exploding

2. Equities benefited from the growth in liquidity

S&P 500 PE ratio. Source: https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart

3. However, despite the stimulus the global economy was growing at a historically medium rate of c. 2–3%

Source: https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD

4. Disinflation prevailed due to globalisation

Production moved to cheap locations reducing the cost of finished goods

After corona virus

1. Globalisation is turning into de-globalisation — trade wars, Brexit, EU disharmony
2. Money printing is accelerating to unprecedented levels
3. Intra-national tensions growing — US political polarisation, distrust in politicians and government bodies

Impact on markets

1. Oil is trading at a negative price. Unprofitable companies are soaring in share price (e.g. Tesla). Equities are at their 2019 pre-corona virus levels. Markets do not reflect the fundamentals.
2. In short term the current trend is likely to continue, pushing equities and bonds higher, causing continuing imbalances.
3. Ultimately, a reversal is due to occur. Inflation to spread. Commodities, metals and materials positioned the best to benefit from inflation.

Investment ideas

VanEck Vectors™ Global Mining UCITS ETF A USD (GBP) | GIGB

• Size $30mn
• 0.50% fee
• Miners (Barrick Gold, BHP, Rio Tinto). Gold, iron ore, copper, diamonds, coal and uranium