Pandemic will reset all markets, economist says

Covid-19 is a “lightning rod” for people needing advice, economist Cameron Bagrie says.

Wednesday, May 6th 2020, 10:21PM

Cameron Bagrie

He told a Financial Advice New Zealand webinar the world had already been struggling with a low-yield environment and that had only become worse due to the outbreak.

Bagrie said, while there tended to be an economic shock every 10 years or so, the world was not in good shape to handle it, with interest rates already low and political tensions globally.

The risk and reward relationship had got out of sync, he said, as even “mum and dad” investors moved into commercial property or put houses into short-term accommodation to generate better yield.

They were now facing tenant risk on a scale that would previously have been unimaginable.

Bagrie said equity markets had also been distorted by ETFs, helping people to trade stocks they did not understand.

New Zealanders would be ignorant to expect they could avoid the impact, he said.

“Every asset class is going to be reset. I’m sitting really conservative waiting for those selective buying opportunities. I don’t think we’re anywhere near the bottom yet for any market. In fact for some markets, commercial property, residential property – we haven’t even started to see the fall yet.”

People needed to be courageous, he said. “We need people with big balance sheets to help people with small balance sheets. The people with small balance sheets are going to go broke.

“Hope is not a strategy but we have got to give people some hope.

“Some of the smartest decisions come out of the most difficult economic climate you’ll ever see ... that’s when things tend to be very realistically priced.”

Markets had been pricing in a V-shaped hit, with a sharp downturn followed by a sharp recovery. But more people were starting to predict it was more likely that recovery would come in the form of a slower U curve.

But while he did not expect Covid-19 to follow the GFC or Asian crisis’ V shape it was unlikely to be a Great Depression, either.

“The Great Depression was three years in a row of negative growth. It didn’t see the degree of policy stimulus seen in the current instance. We are going to bounce a bit … I think about this with a 1987 to 1992 lens, it’s going to take a long time for the economy to come right.”

He said, while New Zealand could not have been prepared for the pandemic, there had also been a level of complacency.

The outbreak would turbocharge trends that should have been happening anyway, such as giving a boost to the digital sector and encouraging traditional businesses and services to improve their online offerings.

There was likely a period of strong inflation coming, Bagrie said, but that would be some time down the track.

For now, New Zealand needed to focus on getting through to the other side and a “ruthless obsession” with getting people back to work.

Tags: Bagrie Economics coronavirus Covid-19 Financial Advice New Zealand