4 Global Perspectives On The Coronavirus

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Summary

Mary-Catherine Lader: The coronavirus has spread to more than 180 countries. As the virus has progressed worldwide, how has that impacted different countries at different points, and what lessons can we learn from how regions have navigated the pandemic?

Welcome to The Bid, where we break down what's happening in the markets and explore the forces changing investing. I'm your host, Mary-Catherine Lader. Today, we talk to four of BlackRock's leaders around the world whose regions have been most affected by the coronavirus. We'll travel from Asia to Europe to the U.S. and touch on how the virus has affected global markets, where we're seeing signs of recovery, and what we're hearing from our clients.

So let's turn to Asia, where China and a few other countries are beginning to curb the impact of the virus. We asked Geraldine Buckingham, Chair of BlackRock in the Asia-Pacific Region, to talk from her standpoint in Hong Kong what the shift back to normalcy feels like.

Geraldine Buckingham: As the virus became very public around Chinese New Year, China went into quite extreme lockdown, particularly in parts of China like Hubei Province. And it was a very, very challenging time for our Chinese colleagues. I think over the last few weeks, there's been more of a sense that things are normalizing. Certainly, colleagues report that on the ground in major cities like Shanghai. But there's obviously concern about imported cases. And we are seeing travel restrictions. I think it's interesting, though, that when I speak to clients who have much larger operations than us on the ground in China, many report that they're effectively back to normal in terms of people in the office, et cetera. I think that the fundamental issues that existed in China around the lack of retirement infrastructure and lack of retirement savings, the need for international capital, these issues are unchanged. I've been quite impressed how through this crisis Chinese clients and regulators have remained incredibly keen to engage. They certainly haven't taken their foot off the gas. We've been able to continue to move forward, albeit, a bit more slowly.

Mary-Catherine Lader: Geraldine talked about how business in China is beginning to come back online. What are the signs she's looking out for to gain confidence of a fuller recovery?

Geraldine Buckingham: Look, I think it's going to be incredibly important for people to have some sense of the health outcomes. What is the virus peak in major economies? How is that being handled? I do think the physical and monetary response we've seen from central banks and governments around the world has been extraordinary. The scale of investment, you know, in some cases 20% or even more of GDP from governments recognizes, as many of them have said, that nothing's off the table to support economies through this period. And I think that also gives the market some confidence. But I do think ultimately this is a health crisis that has then flowed into the financial system. We, obviously, for our own operations, are tracking a range of indicators. It's everything from government restrictions to the number of cases to the growth in number of cases, you know, restrictions like school closures, about 15 or so risk indicators across each of our markets to ensure we have a handle on what is the situation both in terms of what is the situation today, but is it trending positive or negative? And we'll use that as very important input to making decisions about what level of operations we should have in place for our offices.

Mary-Catherine Lader: Geraldine mentioned a host of indicators that we're looking for in markets and for our own business. And while we're still in the early stages here in the U.S., China and other countries in Asia look to be the first to come out of the crisis. So, what can the rest of the world learn and hopefully follow suit?

Geraldine Buckingham: The COVID-19 crisis obviously started in Asia earlier than many other parts of the world, and that presents something of an opportunity to learn from the Asian experience. We've seen markets like China, South Korea, Taiwan and Hong Kong appear to be leading with steps back to normality. It's interesting to note, though, that even over the last few days, countries like South Korea and China, to some extent, have reported a few new clusters and spike in cases, demonstrating how hard the return to normal life actually is. We've got markets like Australia and Singapore that saw a sudden uptick, but are now returning more to normal, and then other markets like India where they're trying to return to normal, but pretty significant lockdowns remain in place.

In terms of markets more broadly, it is clear that this crisis will change the world. And sadly, de-globalization at least for a period looks like it will be under real pressure. This pandemic and the following economic crisis has really exposed fragilities that I think were there before, but are seen more clearly now: weakness in the healthcare system or the political system, populism, income inequality, all of these things I think are getting more focus as we see how this crisis will actually play out. The response from governments around the world has varied, but health experts do seem to agree on the same overarching measures for containing the outbreak. It's not rocket science; test widely, make tests extensive and affordable. Secondly, isolate those who are infected and those who have come into close contact, so contact tracing is incredibly important. For an unknown period of time, social distancing looks like it'll just be necessary, so whether it's school closures or whether it's large events, certainly travel, it's unclear how all of these things come back to the normal we're accustomed to. And finally, good personal hygiene, like washing hands, is I think a change that's here to stay.

Mary-Catherine Lader: While Geraldine provided perspective from the ground in Asia, next, we'll shift to Europe, one of the epicenters of the coronavirus: Italy. But like China, Italy has also had time to recover. Have those signs of optimism started to trickle through?

Giovanni Sandri: The situation is improving materially. And the national health care system is now less stressed with available beds in the ICUs and less people hospitalized.

Mary-Catherine Lader: That's Giovanni Sandri, Head of BlackRock in Italy.

The impact of the virus is different region by region, though. The center and the south of Italy seem to be now quite under control while the rich regions in the north, mainly Lombardy where everything started, are still reporting new cases. And authorities are looking very carefully at how things evolve. That said, the general feeling is that the worst should be behind. And now the focus is on two areas. First, the fiscal response with the support of the European Union to help the economy to restart. Second, how to structure phase two with reactivation of at least part of the functioning of the country. Regarding the latter, the business community is pushing the central government to allow as many sectors as possible to restart as soon as possible. On the other hand, medical advisors continue to be more cautious and monitor the new infections trend very carefully, looking for a longer track record. The next weeks will be key to understand what can be done without taking too much risk of a second wave as strong as the first.

Mary-Catherine Lader: At last, the worst is likely behind us in Italy. And Giovanni says that he's starting to phase into a "new normal." So what will normal look like there?

Giovanni Sandri: Thanks to the application of a rather hard lockdown, the experience in Italy is actually consistent with the epidemiological curve we saw in China where the crisis started at the end of January and things are starting to normalize after three, four months. The Italian authorities are currently discussing to relax some of the restrictive measures. And by the end of May, beginning of June, we should start to see some normalization with specific restrictions in place for a longer period. So, for instance, schools are not going to open until September. Same as China, it will be key the way phase two is designed and executed with the objective to limit the risk of a potential second wave. A vaccine will take months and probably initially will be available only to selected categories. The focus now is to have better equipped hospitals with more personnel, more beds, more ICUs, more efficient ways to test individuals, and offer more effective symptomatic treatments. The general consensus is for the so-called "new normality" i.e. a more normal life with some limitations, for instance, the travelling, large gatherings, starting before summer with restrictions relaxed gradually going towards the end of 2020 and entering 2021. Unfortunately, it is too early to say exactly how the new normal will be at the end of this process. Another important element for phase two is coordinated European approach. This is key to avoid the closure of borders within the European Union.

Mary-Catherine Lader: Giovanni talked about normal life in Italy, but with increased restrictions. So what lessons can we learn from that about how to navigate the virus?

Giovanni Sandri: What happened was unexpected. We have not faced anything similar in our modern history. And mistakes were made, but that was almost inevitable. What we can say now is that a key element is speed. Unfortunately, this was underestimated at the beginning. And although everyone saw what was happening in China first and after in Italy, governments were slow in taking drastic measures needed to contain the virus. The experience in Italy tells clearly that the sooner you act, the quicker you can have the situation under control. It is not by accident that the most impacted area in Italy is still Lombardy, where everything started, and the virus spread for at least a couple of weeks without controls. While the situation in other parts of the country, particularly in the south, which, by the way, has a much weaker health care system, is significantly better. Very important is also the transparency towards people explaining what's going on. It is not easy when you're still learning and you do not know everything. But it is important to be transparent anyhow and communicate clearly and openly. A critical element that has emerged from the crisis is also the additional complexity given by the split of powers between central authorities and regional ones. This has created some confusion in handling the crisis.

Mary-Catherine Lader: As Giovanni mentioned, we haven't faced anything like this crisis in modern history. Across the board, the consensus from all of our leaders around the world is that coronavirus presented an unprecedented challenge to markets. So, over the course of their careers, through many crises, what's made this one so unique?

Sarah Melvin: The coronavirus is first and foremost a health crisis. In my career, there's never been an equal situation of this scale or magnitude.

Mary-Catherine Lader: That's Sarah Melvin, Head of BlackRock in the United Kingdom.

Sarah Melvin: It's also the first time that the economy has been shut down purposefully in order to stem the spread of a virus. We've honestly never seen this speed of recession before, but we've also never seen this scale of coordinated policy response. And some of this policy response will have significant ramifications for portfolio construction for our clients.

Geraldine Buckingham: It's really difficult to say the virus has been similar to any other crisis that I've seen in my career.

Mary-Catherine Lader: That's Geraldine Buckingham again.

Geraldine Buckingham: I don't think the world has seen something of this scale in many, many decades. I think it's a crisis for humanity that has then flowed into the financial markets. And first and foremost, this is a tragic human event and will obviously have very broad social implications, not just for those who lose loved ones through this experience but also through the financial implications that it bears. In terms of market volatility, the closest thing I've seen is the global financial crisis of, you know, 12 years ago. I was still in consulting at that time. But I think that was quite different because that really was a credit crisis that sort of originated in our financial institutions and then spread into the economy. I think banks in many parts of the world are in stronger shape. I think it's very encouraging that governments and central banks have recognized this as quickly and as fully as they have and that within a matter of weeks we've had literally trillions and trillions of dollars pumped into the global economy to try and limit the negative implications of the economic shutdown that's been required to deal with the human tragedy that's unfolding.

Giovanni Sandri: Larry Fink in his recent letter reminded all of us that in 44-year-career, he has never experienced something similar. I cannot say anything different in my 23 years.

Mary-Catherine Lader: That's Giovanni Sandri.

Giovanni Sandri: I went through the global financial crisis. It was a deep crisis. But this time is actually different; it is the first time that the life of billions of people across the world has been impacted so much. Awfully and as we expect, this is a huge, short or midterm shock which will have less negative long-term accumulated impact on the economy compared to the global financial crisis. Not everything is bad. Some things will be for good, for instance, a smarter use of technology and more investments in the health care sector. The crisis is also an interesting example to everyone of what a global shock triggered by the real world can cause. Today, it is a pandemic. Tomorrow, maybe the implication is coming from climate change. We believe attention to sustainability will come out stronger from this crisis with increased focus on the environment and also much more focus on the social elements and the role of companies in society.

Mark McCombe: Unlike the great crisis of 2008 and 2009, I think clients have been quite sanguine about what's happened in markets.

Mary-Catherine Lader: That's Mark McCombe, BlackRock's Chief Client Officer who's based in the U.S.

Mark McCombe: This pandemic is not one particular group's fault. And no finger -pointing has taken place. I also think the experience of the great crisis in 2008 and 2009 has actually given a little bit of a playbook as to how to react when markets become very dislocated. We've seen this, for example, in something like money market funds where very quickly the government stepped in and backed much of the paper that's in the prime money market fund space. Now, I do believe that there will be regulatory reform again coming down in the future. But I think it's clear to see that for the time being, people took this much more in their stride then they might have ten years ago. So I feel very optimistic that actually as a community, as an economy, we're going to get through this.

Mary-Catherine Lader: Sarah and Mark both mentioned their clients. There's no doubt that the coronavirus crisis has changed the way investors will navigate building portfolios, particularly for resilience. So what's been the client reaction?

Sarah Melvin: Each person's response to the virus is very individual and we know that many clients are dealing with personal adjustments and concern for family and friends as well as their professional responsibilities. At the start of the crisis, many clients were focused on concerns for the health and well-being of their employees, as well as determining how to move their own people and operations to a virtual working environment. Those concerns were soon supplemented with having to navigate shocks in the market. How clients are reacting in terms of portfolio adjustments varies widely depending on client needs. Some need more liquidity right now; others are looking to re-risk their portfolios. All are reviewing their asset allocations, and that's where a lot of our conversations are right now, at the whole portfolio level.

Mark McCombe: As you think about something like our defined contribution business, we were very worried about how people would see all of the red ink as their retirement savings had perhaps shrunk as a result of this. And we were able to take steps to reassure many of our clients that actually the old adage of investing for the long-term will pay off if you stay in the market and not to sell just because we've seen a correction. Now, I do still think that there's more pain to be had, because clients are beginning to think about how the long-term economic impact of the coronavirus is going to affect their business. In the first few weeks, there was a great focus on liquidity. But, now, I think people are thinking more about structural impacts on their portfolios. What does that mean? Perhaps it could be something like the amount of real estate people have in their funds or the amount of private equity and whether they see markdowns in those areas that might well have an impact on the overall value of the portfolio. And that can have a dramatic impact on asset allocation decisions as they go forward. Also, I think equity markets have definitely been bouncing around as a result of sentiment, as well as people's concerns about the future long-term impact on the U.S. and global economy. But I do see people returning more cautiously into the markets to look for opportunities, not in an ambulance-chasing way, but rather thinking about asset allocation and areas and assets that they might've wanted to get into previously but maybe didn't have the opportunity.

Geraldine Buckingham: This crisis has really emphasized how important it is for us to be nimble to our client needs. At first, clients really needed guidance as they grappled with incredible volatility. Now, clients are responding to the changing environment with quite local issues, so for example, superfunds in Australia facing funding challenges as people are allowed to access retirement savings earlier than was anticipated. Some clients are actually looking for opportunities to put significant money to work and looking for dislocations in the market. So, it's important that we're able to service all of those clients in quite a different way.

Mary-Catherine Lader: Market shocks represent an opportunity for investors to think about the long term. But beyond investors, the crisis will change the way that all financial services operates. So let's turn back to Sarah: What does she expect this means for finance, and what is BlackRock focused on now?

Sarah Melvin: There's no doubt there will be a new normal that appears as a result of this crisis. Crises, though, also often bring innovation, and we've seen that in ways in which we're engaging with clients and with each other, particularly through technology. I don't think this will fully reverse. I also think the lockdown is making us all much more thoughtful about the world we live in and I think that will translate to even greater focus on sustainability as we think about how we do business and how we invest. Right now, our mission is simply to help more and more people get the support they need, and we're doing that by partnering with several UK charity organizations who are on the frontline providing food supply and distribution and medical help. We've done this through donations to the National Emergencies Trust, Team Rubicon UK, and St. John's Ambulance who are all focused on helping people through this crisis. Our own employees have taken fundraising activities to heart as well, some going as far as shaving their heads for charity.

Mary-Catherine Lader: Sarah provided insight into how the industry and BlackRock as a company is navigating these changes. On a more personal note, the crisis has transformed all of our day-to-day lives. I now wear a mask and gloves, and I have antibacterial solution in every corner of my home. So, our last question to our regional leaders: How has the coronavirus changed their personal lives?

Geraldine Buckingham: Coronavirus has had all sorts of impact on daily life. I think perhaps the most obvious is just the difference in working. But a number of things have really helped. I mean, technology has been an absolute save in this scenario. It's also been very important personally with family members spread around the world, the ability to Facetime, particularly for my young son, has meant that people still feel close together. I think it's important to remember that this is a marathon, not a sprint and that pacing yourself is incredibly important. So, I've tried to keep something of a routine during a workday at home. I make sure that I get out of the house for a short walk or something like that every day just to get some fresh air. But I think it is important to be gentle with one's self and gentle with others because I think the level of stress is high. And it's important to remember that everyone's feeling that.

Giovanni Sandri: A lot of the things that were part of my normality have disappeared almost overnight: travelling, spending a weekend out of the city where I live, Milan, meeting my friends, even going to the barbershop or having a walk in the park nearby. What I suffer the most is to be forced at home without the possibility to meet my old and sick parents. They are by themselves, and we can meet only via video. On the other end, I have the chance to focus more on my teenage daughters now, and for instance, help them with their studies from home. And this has been quite a nice experience. So, I continue my day-to-day job with calls replacing meetings, not travelling anymore, and now investing more time on my other job as a father. As always in our life, also during a pandemic, there are some positives.

Sarah Melvin: What's surprised me most about this experience is the resilience of human beings, of the spirit that I've seen amongst people, the incredible unity, people helping one another. And it's so gratifying to see colleagues and friends reach out into their communities to see how they can help. That really has been heartwarming.

Mary-Catherine Lader: As all of us around the world seek to get through this crisis, we know we're entering a new normal, but we don't even know what it looks like. But despite the challenges we've all faced, as businesses and as individuals, it's been an extraordinary time of resilience and of coming together. Thank you for listening to this episode of The Bid. We'll see you next time.

This post originally appeared on BlackRock.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.