“Job losses in the US may have already peaked and that furlough schemes in Europe have prevented unemployment levels from rising sharply. Additionally, higher unemployment benefits and cash transfers have helped households build substantial cash balances and, therefore, an imminent rebound in consumer spending is very likely in the developed markets,” wrote Jitendra Gohil, head India equity research at Credit Suisse Wealth Management in a June 19 co-authored report with Premal Kamdar, their equity research analyst.
India’s recovery, they believe, will lag DM due to low per-capita income, poor health care facilities and large population. Moreover, the delay in a significant fiscal stimulus has prompted further downward revisions to consensus macroeconomic forecasts.
Wood suggests investors maintain a barbell strategy of owning both growth and value stocks in the current market scenario. From a geographical standpoint, Wood says the renewed move in cyclicals should also lead to renewed outperformance by Europe and Japan, given the greater cyclical gearing of their benchmark indices.
“Growth stocks have resumed the relative outperformance of late because of the renewed second wave concerns. But when the V-shaped recovery talk hits the market, and the pressure comes on Pivot, it will be the cyclical stocks that outperform again, such as financials, autos, energy and basic materials,” Wood said.
That said, in case of a second wave of the Covid-19 pandemic, Wood rules out a stringent lockdown in most parts of the world, and especially in the United States (US) and Europe.
“There is no way America under Donald Trump is going to close the economy again. In the case of the US, this calculation is clearly in large part driven by the proximity of the presidential election. But even in Europe, the base case is that renewed outbreaks will be dealt with at the local district level not by across-the-board closures,” he wrote.