At Columbia Threadneedle Investments, our team of 180 analysts and research associates is dedicated to original, independent research. Working collaboratively across all major asset classes our teams utilize big data and analytics, such as machine learning and augmented intelligence, to turn information into forward-looking insights that add real value to investment decisions, enabling consistent and replicable outcomes for our clients.
In response to the evolving Covid-19 pandemic, we are focusing our research efforts on four broad areas: 1) impact on healthcare; 2) economic impact; 3) market impact; and 4) long-term implications.
The health care impacts
While we wait for news on anti-viral treatments (even if successful the vaccine may not be ready until Q3, 2021), we are busy exploring related areas. These include the IL-6 treatments for lung issues – which bring potentially lower mortality rates and shorter use of ventilators – as well as assessing the implications of the delay in treatments for other medical conditions.
Our working assumption is that recovery will be activated by a series of dials, not a single switch. Recovery will also come at different rates by region and industry.
The economic impacts
In terms of data, the impact of the economic freeze is seen first on jobs; unemployment will rise dramatically, with the peak expected in the second quarter numbers. GDP contraction will follow – for example, the recent eurozone PMI was very weak (less than 30) and led lower by an especially low return from Italy (20.2 composite). These numbers seem consistent with a 10% contraction in eurozone growth.
While normal economic metrics help us quantify what has happened, they are not as useful in helping us consider what will happen. Consequently, we have switched our focus to different economic indicators. These include levels of pollution, traffic and mobile phone movement that imply, when cross referenced, if movement is picking up – which may be a leading indicator for economic activity. Regarding movement of people, we are focusing more on weekend movement (which may be voluntary) as a measure of sustainability, rather than Monday to Friday movement (this may be more employer-induced).
In order to provide for debate and collaboration, it is necessary to create a consistent set of definitions. We have defined arbitrary economic recovery “shapes” in order to provide consistency to our research.
V, U or L are defined as the potential paths taken to return to Q4, 2019 levels:
- V- shaped recovery in six quarters (Q4, 2021)
- U- shaped recovery in 10 quarters (Q4, 2022)
- L- shaped recovery beyond 2022.
Ultimately, the duration and intensity of this unprecedented economic shock depends on the duration of the shutdown.
The market impact
Our asset class experts and global research teams are building scenarios based on the economic base case and a more severe bear case for corporate cash flow (the air that keeps companies alive now); balance sheet (the water that keeps them alive medium term); and growth (the food that helps them and the overall economy grow and remain healthy).
We need to understand the behavioural and policy changes the pandemic and economic shock will bring about. Therefore, we have created a team to consider the longer-term implications outside the frenzy of the current environment.