Welcome,
Revealing Covid 19‘s Impact On Your Purse
A timid Invest! ELLE‘s
Essential Guide
My dear Friends,
For the past year and a half, the Covid19 held its grip tight over our lives. Lockdowns resulted in all forms of stress, and many women had to carry the bulk of the burden. The pandemic shook the financial future of many. Some lost their jobs, while others had to shut down their businesses. Yet most women had to juggle home, work, and financial decision-making all in one.
The stock market was an added stress factor. A crash caused by panic selling at the beginning of the pandemic reduced many portfolios by 30%, including mine. My usual calm was shaken, and I guess yours as well.
Covid19`s true impact on our purses will not be known for quite a while. There are just as many unknown factors and conflicting information.
So here comes the essential guide as a confidence booster for the financially timid!
The pandemic had an ” acute short term impact on global markets this was largely reversed by the end of June 2020″
Athony Shorrocks, Author, Global Wealth Report
Millions of Millionaires
North America and Europe, saw a real upswing, with a 12% growth in overall wealth. However, this growth in wealth was not universal. The number of UHNWIs in Latin America, Russia and the Middle East fell considerably.
Global wealth not only held steady in the face of such turmoil, but infact rapidly increased in the second half of the year
Anthony Shorrocks, Author, Global Wealth Report
By June 2020 and the first two quarters of 2021, stock markets went from one new all-time high to the next. Driven by vaccine developments, a strong belief in a quick recovery and the government’s financial handout to soften the blow.
Despite or because of lockdown restrictions, house prices were soaring. That, in return, explains the increase of millionaires across developed economies. Interestingly the Asia – Pacific region saw the biggest growth in millionaires.
It has to be added, however, that this sharp rise in wealth is somewhat detached from real economic data-remember. Many countries were in lockdown, and overall production was down to zero. While share prices soared, publicly listed companies were writing losses. Weird, isn’t it? Maybe another bubble, like the Dot-Com bubble?
Around the Globe, the public sector transferred vast amounts of money from their sector to the pockets of individuals. Assisted by extremely low-interest rates, plenty of time at hand and nowhere to go, many developed a fascination for the stock market. Imagine even women started to invest! Which I consider positive.
Fintechs, social media and crowd speculation phenomenons helped push stock prices to all-time highs worldwide. The world seems full of gamblers these days the higher the risk, the better.
However, it must be pointed out that the number of millionaires would have grown less significantly without including assets like houses.
Even Some decline
Three regions saw a decline of wealth owners. Latin America by has 14% fewer millionaires. Millionaires in the Middle East dropped by 10%. Russia & CIS(commonwealth of independent states) lost about 1% of their millionaires. However, we need to bear in mind that currency fluctuations play a significant part in this: the Russian rouble was down 16% against the US dollar in 2020.
Countries with large declines in overall wealth were some of the hardest hit by the pandemic. For example, Italy, France and Spain: the UHNWI populations fell by 3%, 9% and 14%, respectively.
It has to be mentioned that tourism came to a virtual standstill, and this is why economies such as Spain, Portugal, France and the UAE, which are heavily reliant on visitors, were particularly affected. Hence a reduction of the overall wealth despite the respective government‘s generous handouts
Billionaires’ fortunes hit record highs, and their assets rose by 27%, to $10,2 trillion during the pandemic. Largely due to a very steep rise in share prices, tech-company chief executives were the lucky winners, and their wealth soared by a staggering 41%(UBS).
Is this sustainable?
The rise in fortunes reflects the generally strong performance of global stock markets since late March, despite most countries continuing to suffer sharp recessions. Industrial stocks benefited disproportionally as the market priced in a significant economic recovery once the pandemic is over. Some of these factors will self-correct over time as interest rates will begin to rise again.
It remains to be seen if the high demand for certain products will be sustainable. The already priced-in future recovery will remain to be proven. Do we know what what will actually happen once the flow of cheap money subsides, speculation fever lowers? What happens when current stock prices align with true revenue? Probably at best a mild correction with a bit of a bumpy ride for a while, but with the benefit of less speculative waters in the future.
The Cost
Extremely low-interest rates, fiscal and other stimulus packages, furlough schemes, and extensive bond-buying programs are reasons that global economies showed surprisingly high resilience throughout the Covid-19 turmoil.
The lowering of interest rates by central banks has probably had the greatest impact.
Nanette Hechler-Fayd´herbe, Credit Suisse
Governments, in cooperation with national banks, transferred lavish amounts of money from the public sector to households. Plenty of government money, reduced spending opportunities, and all-time low debt rates led to overinflated assets in the pockets of many.
The good news, generous transfers helped many households to maintain a stable income and prevent businesses from faltering. A full-blown global economic crisis was averted.
The bad news is that public debt relative to GDP has risen worldwide by 20 % or more in many countries. The pandemic is viewed as the biggest single risk to future wealth creation. The reason is a significant growth in wealth inequality that will fuel demand for more policies to curb wealth imbalance, wealth taxes are a favoured option. Plans like in Argentina, Canada, or South Korea will likely be replicated elsewhere.
“We could see a shift to more wealth taxes
as governments scramble to cover the huge
costs of the pandemic, and targeting the wealthy tends to be uncontroversial with voters,”
Filippo Noseda,Laywer, Mishcon de Reya
Inequalities bear risks
We are faced with a new virus and a new kind of recovery. Typical economic recoveries run in V, W, Z, U and L curves. Since the start of the pandemic, we’ve heard about different recovery curves: Z-shaped recovery (optimistic: downturn, bounces back to pre-crisis growth), V-shaped (optimistic: steep decline, quick recovery), U-shaped (somewhat pessimistic: the period between decline and recovery), W-shaped (pessimistic: recovery, second decline), and L-shaped (most pessimistic: extended downturn).
However, the K-shaped (JP Morgan) recovery curve paints the most realistic, yet unpleasant, picture. The Covid-19 recovery path bifurcates in two directions, some industries will have a rapid V-shaped recovery and others a slow L-shaped recovery. Large firms and public-sector institutions with direct access to government and central bank stimulus packages will make some areas of the economy recover fast but leave others out. Those that get left out are the usual whipping boys: small and medium-sized enterprises (SMEs), blue-collar workers, and the dwindling middle class.
This will have far-reaching effects, from more subsidies, high unemployment in certain sectors, and supply chain and workforce shortages with rising product prices in other industries.
Inequality is not a direct issue affecting wealth but will have an impact on domestic government policy and tax issues, which is a concern for many wealth owners.
Structural Effects
Economies will most likely face long-term structural effects. Inequality will rise, employment in affected industries will stay low. As a result the long term, technical adaption will accelerate. Access to technology with all its benefits has and will continue to increase inequality. This will put governments under pressure to push politics to curb inequality through political measures.
The paradigm shift
Covid-19 has a long-term effect not just on human lives but the economy as well. Unsurprisingly a staggering 80% of wealth owners are worried about the economic future. At the same time, nearly 90% see new investment opportunities in a post-pandemic world.
Increased availability and greater adoption of technology played a huge role in the increase of stock market players. Just under 50% of people find technology as a disruptor exciting. Technology will democratize investing as accessing and analyzing financial data is eased, investing will be revolutionized, and the number of investors will go up. Again, women find Fintechs difficult to access and too few around to serve their specific needs.
Women, however again fall short due to them having to shoulder most of the burden Covid-19 restrictions caused in families. They had less time at hand and more stress than ever before, which will leave many trailing behind in financial decision making for quite some time to come. Further less tech savvy women find Fintechs not only difficult to access feel they fail to serve their specific needs.
We are entering a new economic cycle and the prospects for wealth creation and growth are huge,”
David Bailin, CFO, Citi Private Bank
Rising Tensions
The focus on the future to safeguard and grow wealth is imperative. A main trigger is environmental sustainability. “New generations are challenging the older generations to do more.”
The younger generation is less interested in reputational gains but have their focus on environmental, social, and governance agendas. Compared to their parent’s generation, they want to be more responsible. The new generation investor has less focus on the financial return but more on impact and sustainability. However, only 39% of investors feel they have all the information they require to make ESG investments.
The rate of development associated with climate change spending, the future of power generation and storage, and how we address global warming will be as radical in our lives as the development of the internet
David Bailin, CFO, Citi Private Bank
In previous downturns, the green agenda took a back seat, but this time it’s taking centre stage, emphasised by summer 2021´s weather turmoils. The EU has been leading with green bonds, and Joe Biden’s new administration will see the US focus more on sustainability.
ESG dominated
Whether the 49% rise over the last 12 months for ESG investments can be attributed to a shift in mindset due to the pandemic, a summer with plenty of weather catastrophes or more intergenerational communication is unclear.
The fact is a younger and internationally educated generation has a more global view with a different mindset. Their mindset is very much about making climate change a focus and that includes investments.
Opportunities for wealth creation are wide-reaching, but so are the risks. Yet 61% of wealth owners feel they do not have all the information they need to assess ESG-related investments. So, there is still some way to go.
Succession planning
Unsurprisingly, almost 60% reassessed their attitudes to succession planning in light of Covid-19. Yet, still, 28% consider intergenerational wealth transfer as one of their top three worries. Only 23% see it as an exciting opportunity.
Many of the younger generations, having gone to Universities abroad, have more global views and different priorities compared to the parent’s generation. Aligning varying priorities and wealth preserving can cause friction.
The new generation will focus their investment strategies on technologies to curb climate change. For them to gain a reputation is irrelevant but what they believe in matters. 62% of family offices adapt to this new mindset and increasingly consider impact investment as important factor
This new generation of investors is purpose-driven and less inclined to invest in an asset unless it serves to cut carbon emissions or can otherwise significantly benefit the well-being of society. Their investments will be directed towards technology, AI, and digitalization or tokenizing assets like real estate or art and they probably use the blockchain to store them.
Currently 35% of multigenerational family offices invest in residential properties with a focus on retirement or care homes, student housing or healthcare facilities. However the investor focus, will shift from prioritizing income to the building´s carbon emission certificates. Builings account for 40% account of all carbon emissions.
Collectable assets
Finally, despite logistical challenges, investors continued to drive values higher for key collectable assets. The sustainability of such assets however need to be analysed:
- Handbags top the list. Hermes bags had a 17% a price increase.
- Fine Wine, Unlike after the global financial crisis, the wine market has held its nerve, merchants did not mark down prices, and the market has been stable. Investors are about; even Bordeaux prices feel like they are firming up.” Global warming has also been cited as having a big impact on wine regions that are starting to feel the heat.
- Classic Cars, the value of classic cars fell by 7%, 2020 but are back up to third place, with growth of 6%. Ferraris revved up particularly strongly, with the HAGI F Index rising 14%.
- Coloured Diamonds, the coloured diamond market was also somewhat stymied by the pandemic. “The logistical lockdown simply made it impossible to conclude transactions in a timely manner,” says Miri Chen of the Fancy Color Research Foundation. “It took much longer for sellers to ship diamonds overseas, and for buyers to transfer funds and to ultimately receive custom-made items in a piece of jewellery.” Prices remained flat consequently.
- Arts sales volumes at auction houses like Sotheby’s and Christie’s was down 26% and 46% in 2019, respectively. The problem was compounded by the slowing in the supply of quality works. This, however, did not have any impact on the value of individual artworks. Home working drove demand for collectors sprucing up their homes.
However, beware, if you don´t know your Monet from your Manet, your Hermés from your Chanel, or your Chateaux Petrus from your Chateaux Laffitte, stay away. First, make yourself knowledgeable not only about the key trends in the luxury investment markets, but you also need to go beyond and truly understand what you are buying that you are passionate about.
Covid19 imapact
There will definitely be a post Covid19 dawn. Global economies will have to reinvent themselves to survive. This will offer a plethora of new opportunities but staying informed and getting actively involved will be the key to success. The world of finance is not witchcraft but a matter of making informed decisions.
Diversified portfolios with long-term investment strategies, which follow trends such as the rise of technology, allowed losses in some areas to be offset by growth in others. Whether across asset classes or geographies,
if done correctly, helps to weather any storm.
Now is the time to take control of your financial future. Boost your confidence with this essential guide. It is tailored specifically for the more timid Invest! Elle. By unveiling COVID-19’s possible impact on your purse, we empower you to navigate these uncertain times with more confidence.
