By Peter Lundgreen is the Founding CEO of Lundgreen’s Capital.
It was not a surprise that the Asian Development Bank (ADB) lowered the 2021 GDP-growth forecast for The Philippines this week. Though despite the expected move, it was a severe cut from 6.5 to 4.5 pct. in GDP-growth this year. It forces investors to reconsider or adjust their investment and allocation expectations. The Philippines’ case is just one out of many countries where the downwards adjustments will become reality. The biggest concern is how delayed the recovery will be, as the new expectation is what I would call a “best qualified guess”, as the pandemic continues to haunt the economy. It’s certainly not just a challenge for the Philippine economy, but for many countries as well, though some large economies have started to rush forward – therefore, a growing number of investors will continue into the same asset classes.
Six months ago, the optimism concerning the global fight against Covid-19 was at a high. Since then, the vaccination speed proved to be slower than expected and the Covid 19-mutations have become more aggressive. These two forces surely changed the outlook for when economic recovery is visible, but it also, on a daily basis, accelerates the difference in the recovery around the globe.
The situation in Brazil has long showed how vulnerable a country can be if it’s exposed towards an aggressive Covid-19 variant, but I trust that the Covid-19 chaos in India is the real shock to many around the world, including in the financial markets.
It’s feels like a schism, as China’s economy is back on a strong track, the American economy is beginning to roar ahead, and Britain’s momentum is gaining pace again. At the same time, I explore many investors that still are flooded with cash and still are on the hunt for attractive and yielding investments. It’s my assessment that this situation will continue rest of the year, maybe even intensify and continue until mid-next year, which is a far longer time than expected from just six months ago.
These three mentioned large economies totally represent around 46 pct. of the total global GDP. It will make a difference for the whole global economy even if just these three economies move fast-forward again. This is good news and I clearly expect this to happen. It will help the economic recovery in the countries that are linked to the American, Chinese, and British economies.
As a natural consequence, I expect investors to continue the rush towards these destinations. It will be particularly visible in the respective stock markets, though also in a range of other asset classes including the real estate markets in all three countries. I see no need to change the view that both the US Dollar and Pound Sterling will stay firm throughout 2021, and so will the Chinese Renminbi in its own trading bubble.
I expect the optimism to be pretty firm during the rest of 2021, though only concerning half of the global economy, or precisely 46 pct. This might very well increase the feeling of growing division in the global economy and truly setback some economies. The setback will be linear with how much chaos the Covid-19 pandemic will create, like in India and Brazil.
Ongoing tough lockdowns will also generate a continued standstill feeling in the economies, and much longer than first anticipated. Though a number of the lockdown economies still have the fiscal muscle to support the domestic economy and at least avoid the biggest growth slump, although running short in terms of the expected recovery this year.
Most of the ASEAN economies work best when the global economic growth hits a certain pace. One could claim that this is the case for any economy in the world, sure, but it’s outspoken for the ASEAN group of countries.
I also expected to prepare an increasing allocation towards Emerging Markets around this time, though currently, it remains very selective. The Philippines remains on my favourite list, but to move forward, the GDP growth needs to stabilise, and it might require more fiscal stimulus to create to slightly more upbeat development for the ASEAN economies, including in the Philippines.
