What to expect and how to protect your wealth?
We are still far from a global resolution to the pandemic, so it might seem incongruous to start thinking about the “after” when today is still so full of sad news.
Yet it seems more and more obvious that the economic aftermath of the pandemic is becoming a massive issue and could have a much longer-lasting impact than today’s number of cases.
The Financial Times recently set the tone clearly in its headline (04/04/2020), stating that this is the worst economic reversal since the Great Depression.
It is hard to argue with the fact that this crisis already seems far worse than the one in 2008. The key reason is that 2008 hit mostly the Financial sector as a result of the collapse of the US Real Estate and related securitization markets in 2007. The present crisis is and will be structural. It is global and cross-sectored.
This is precisely why we at ACBM felt that we should step in and share our views at this stage on what’s next and what you could already be doing to protect your wealth or even position yourself ideally to seize opportunities.
ACBM is the first fully-regulated Digital Corporate and Investment Bank dedicated to mid-to-large Businesses and Sophisticated Investors, especially for those with significant cross-border flows and activities.
As an immediate reaction to the last two months, we have seen a very significant surge of activity since the pandemic started to hit hard.
Quite understandably though, as traditional banks are occupied with massive staff and physical infrastructure issues, many have been unable to maintain the same level of service, especially on cross-border flows, as their global network of correspondents is also in lockdown and working from home.
In addition, we feel that this trend will continue beyond the pandemic, and this is certainly the single most important consequence on the way in which business will be conducted in the future. After the forced isolation, entire swathes of the population that were still hesitant to move fully online have now realised that the following is completely possible:
· Online Banking, Investment and Financial services obviously, which makes ACBM’s value proposition even more relevant
· But other online sectors such as Edtech (Education Technology), LifeSciences and especially Digital Health, as well as Gaming and Online delivery services, will be the immediate beneficiaries post-crisis
· On the other hand, Retail, Travel, and Energy, as well as the traditional Financial industry, have taken a very serious blow and will not recover in the short term, even if there could be a short spike in leisure and retail services immediately after the release from lockdown, but we should be careful of viewing that as a lasting trend
On a geographic note, many people are hoping for a quicker recovery of China and Asia as a whole (not including India) after being at a standstill for close to 3 months, which could help support the western economies. It may happen, but we still have difficulty seeing a clear path beyond the next few months.
We see 4 phases in this new economic crisis, and a lot will depend on how the global economies play along over the coming months.
· Phase 1: we are in phase 1 and that may end with a short economic surge post-lockdown
· Phase 2: structural impact of massive lay-offs, bankruptcies and a looming debt crisis could trigger a deflationist spiral. This is already reflected in forecasts for energy prices and financial markets. Real Estate assets, which have been shaky in the US and China could follow. Finally, the VC / PE bubble could burst
· Phase 3: with a concerted effort, and if we avoid the “blame game”, world economies should enter a “reboot” phase that could see a wave of “relocalisation” of manufacturing businesses towards the west. The crisis may also motivate leaders to implement a more aggressive policy in sustainable activities which would help promote sectors such as agro / agri-tech, new energies, foodtech and similar
· Phase 4: this would be the main “reconstruction” phase. Global businesses could thrive again, with a much stronger emphasis on cost-efficiency, transparency, and sustainability, supported by cross-the-board Digital transformation. In parallel, local businesses, proximity stores and smaller scale units could get a very serious boost. The start-up community will flourish again with sounder business models
One thing will be common however to all these phases, a key ingredient to a quicker recovery: the ease and convenience of financial flows to allow the smart and swift allocation and re-allocation of resources between industries, companies and geographies.
This is what ACBM’s unique, bespoke platform has been built for. Giving back to Corporates and Investors full autonomy and control on their routine cross-border exchanges, payments and investments. More than an online bank, our unique proprietary platform allows for multi-entities’ seamless management, supported by an in-house AppStore so that clients can select the services they really need and are willing to pay for.
So, all is not doom and gloom. Here are a few more suggestions to get ready for this new cycle:
If you are very illiquid and hard-asset rich, it seems logical to increase the cash component in your global holdings, even if that means taking some of the losses already. This is obviously a defensive move if you also believe that there could be more down rounds in the market. But not only this: in periods of deflation, including during the Great Depression, investors and corporates with free cash have been the ones who made the most of the opportunities in the market.
With this free cash, investing in the sectors that will immediately benefit from the pandemic is certainly a sound move, although beware of a “bubble effect” as not every EdTech company will change the way people are learning. Same with Medical devices or Fintechs.
Investing in the real economy, buying distressed assets if you have the skills, or investing alongside specialists and splitting your bets between several sectors and several geographies could allow you to start benefiting from an upward trend as soon as it happens and then start rebalancing your portfolio.
We still have a long way to go to get there, but it is now that you should start getting ready. At ACBM, our team of experts and advisors is fully geared to help you prepare and get through the crisis not only with the least damage possible, but potentially ready for the next rebound.
The writer is CEO of ARIE Capital Investment & Banking (“ACIB”), a Financial Services Group Headquartered in Singapore and London. ACIB operates ACBM, the first Digital Bank focusing on Corporate and Investment Banking and dedicated to mid-to-large businesses and Sophisticated investors with significant cross-border activities. ACIB’s other division focuses on Venture Capital and cross-border M&A.