Crisis could call time on globalisation predicts Prime Partners

Private investors must analyse long-term investment trends through the new lens of the coronavirus crisis when rebalancing their portfolios, believes Francois Savary, chief investment officer of Geneva-based wealth advisers Prime Partners.

Mr Savary, an economist who has also worked for banks including Deutsche, Darier Hentsch and more recently Reyl, where he was head of investment strategy, predicts a strong economic rebound in the second half of 2020, following “strong and decisive action from central banks and governments to avoid bankruptcies”, with unemployment peaking in late spring or summer.

“Without a return of consumption, we cannot begin to think about the longer term,” says Mr Savary, who advises on $4bn of assets invested by up to 200 family offices, many of them in Brazil, Mexico and other Latin American countries.

De-globalisation

One of the key trends he has forecast for some time – which he expects to be accentuated by the crisis – is de-globalisation, as supply chains are increasingly disrupted.

“We are expecting more regionalisation of the supply chain in sectors such as healthcare,” warns Mr Savary, who has in the past achieved some success in predicting impacts of geopolitical events, especially in the Middle East.

“The public health issue will become a major long-term investment theme,” he suggests, with regional supply chains established for medicines and vital equipment including masks and ventilators.

“We can no longer be dependent on one single producer based 10,000 kilometres away. The investments you need to face a major public health crisis must be much more regionalised.” These observations are in line with other private banks who expect an end to reliance on Chinese exports for key healthcare goods.

S and G, more than E

A major realignment of companies according to environmental, social and governance (ESG) criteria is also on the cards. But whereas other wealth firms expect companies to restructure to restrict carbon emission and climate change, Mr Savary believes the social and governance aspects will outweigh environmental factors.

“The S and the G will be the most significant. We have seen regulators telling banks to stop paying dividends. These actions are quite new.” Now he expects these interventions to be extended to the corporate sector, influencing governance of companies. “The long-term trend will be one of more state intervention into the corporate sector,” as governments feel obliged to defend the public interest to a much greater degree.

This greater involvement of governments in public life will also intrude much more in the daily lives of citizens as well as industrial firms. The authorities will be faced with the “long-term issue in managing the debt overload”, from increased public spending during the unprecedented crisis.

Among the measures which governments may consider is forcing citizens to forfeit their savings in exchange for holding funds investing in government bonds.

“They might say that each person in the economy must participate in the reduction of the debt load and substitute government debt for non-productive cash held in personal accounts.”

Rise of the consumer

One trend which Mr Savary expects to be reversed involves the shift from a producer-led to a consumer-driven economy. “Over the last 10 to 20 years, the economy has mainly been benefiting companies, with everything backing production at the lowest possible cost,” he argues.

Now could be the time for a speedier shift to a consumer-driven system. “Social tension is increasing and governments need to make some choices so that it does not develop into social unrest,” he warns. These are likely to include less funding of corporates and more popular, financial measures to help individual citizens.

Encouraging small and medium-sized enterprises at the expense of the largest firms, which increasingly dominate global business, will be part of this equation, believes Mr Savary.

While the crisis has benefited the biggest brands, such as supermarkets, SMEs have been the most severely disrupted. Mr Savary believes this will change as governments fight to preserve social cohesion.

“There will be an incentive for governments to fight these oligopolistic tendencies. Independent SMEs are under significant pressures, with many going bankrupt,” he says. “More institutional policy will emerge in Europe and the US to support small and mid-size companies. This question will come to the forefront during the crisis, as society will no longer accept a handful of brands running 95 per cent of the market.”

While bearing in mind these strong thematic trends, Mr Savary is also warning his family investors to beware of other oncoming obstacles, which may confront their portfolios. Firstly, he describes a challenging bond environment, particularly on the high yield side, with his investment teams preferring equity allocations, especially in emerging markets.

Secondly, he advises clients to be aware of over-allocation to dollar assets, which has tempted investors looking for a safe haven during the crisis. He says the current shift to the Greenback might resemble the 2008 global financial crisis. “We saw a huge need for US dollar financing and then the market corrected. We could experience this again, so we need to be alert.”