Afternoon all.
I’ve spent some time this morning reading through a report by Mckinsey & Co., which looks at the implications of COVID-19 for business and economies.
A part of this that stuck out to me is the development of 9 scenarios they see as part of a range of outcomes for how the virus situation resolves itself.
Here is a link to the article and full report: https://www.mckinsey.com/business-functions/risk/our-insights/covid-19-implications-for-business
The black background section represents their core scenarios, all of which result in GDP recoveries which would almost but guarantee that stock markets also recover.
The bottom left scenario appears to be their “black swan of black swans” outcome where economic policy decisions taken are ineffective combined with healthcare systems that fail to control the virus spread.
Of all 9 scenarios, only the most severe one results in prolonged economic decline and I think that we can already see that lock downs, quarantines, healthcare systems are able to at least partial curtail the freedom given to the virus to replicate and spread. On the economic side there is also evidence that stimulus will help dampen the damage done to the extent that a depression is avoided.
So unless you think this virus will beat us, every scenario leads to a recovery. The V-Shape recovery that everyone wants to see is scenario A4, but I put my own view closer to A1, reflecting what I say above in that healthcare and economic measures are at least somewhat effective on a permanent basis but cannot achieve full mitigation.
And like Asia are seeing now, attempts to reopen economies with the shortest downtime will lead to a recurrence of infections and create a ‘stumble’ in recovery efforts.
The McKinsey report also raises some interesting ways to consider rethinking the investment landscape if adapting some of their analysis. I’ll write more about this is my blog over the next few days, but if you look at the ‘Five Horizons’ they suggest companies need to look at you should see what I mean. It can certainly have an impact on the kind of sectors you might want to invest in when considering which scenario you think is mostly likely along with those 5 horizons.
Some food for thought, if you take a look at the report and have some ideas please feel free to share them in the comments.
Stay safe, thanks for your time.
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