Reasons for investors to be cheerful

Markets are betting on a V-shaped recovery – and recent data suggests that they may be right.

Car salesman © JUSTIN TALLIS/AFP via Getty Images
UK car sales were down 35% year-on-year in June, but buyers are probably waiting for incentives
(Image credit: © JUSTIN TALLIS/AFP via Getty Images)

The two biggest uncertainties facing investors are when we will have an effective vaccine or treatment for Covid-19 and whether the economic recovery will be V-shaped or resemble some other increasingly contorted letter of the alphabet. Although these questions are obviously related, they are not entirely the same. The world will not get back to normal until the coronavirus is no longer a major problem, either because we’ve solved it medically or because enough people have caught it and got over it. But the scale of the economic shutdown that we’ve seen in the last few months is so great that unless activity snaps back as far as it can in the meantime, we risk a vicious cycle of business failures and rising unemployment that condemns us to many years of economic struggle even if vaccines, treatments or acquired immunity arrive relatively soon.

So while stockmarkets are justifiably taking the view that a year or two of lost profits has little impact on the long-term fundamental value of companies, they are still implicitly betting that the wider economy rebounds as much as possible. Anything that is not V-shaped at first means greater medium-term risks, not just a slower recovery. Hence watching the short-term economic data is a lot more important now than it would usually be.

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Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.