The novel coronavirus (COVID-19) pandemic could result in specific asset mispricing, according to Middle East respondents to a Chartered Financial Analyst (CFA) Institute survey.
The survey, conducted by the CFA institute, the global association of investment management professionals, was published as part of a new report and survey of its global members. It analysed the impacts of the ongoing coronavirus on the global economy and the investment management industry.
The report said that Middle East respondents indicated that the potential mispricing was driven by two underlying factors. A total of 37% of respondents see that the first factor is liquidity dislocation, with 33% of respondents seeing the the distortion of natural market pricing due to government intervention as the second factor.
The report highlighted that 49% of Middle East respondents see a medium-term ‘”hockey stick” shaped economic recovery. This implies some level of stagnation for the next two to three years until signs of recovery are visible.
A total of 32% of respondents believe that the recovery will be a slow U-shaped recovery. Most respondents sit at the conservative end of the spectrum, in comparison to several industry and banking CEOs, who have so far appeared more optimistic.
Moreover, 47% of Middle East respondents are either still analysing volatility before making a decision on strategic asset allocation, or are not yet seeing any significant impact.
A total of 36% of respondents believe that market volatility has forced their firm to significantly alter their investment management processes or allocation choices. Only 17% believe that market volatility has no impact on their activity or their firm’s activity, the report noted.
“Varying global responses exists per type of asset and region. For investment-grade corporate bonds in developed markets, 76% believe liquidity is down, with central bank intervention steadying the downward trajectory overall,” the report read, adding, “Central bank intervention is perceived to have been more impactful in corporate and sovereign bonds in developed markets than for equities.”
The report also mentioned, “Only a minority of respondents think that we are facing a severe liquidity shock, which could result in fire sales and dislocation. Liquidity in global developed market equities seems to have suffered less from the market rout, with 31% of respondents believing the level of liquidity has dropped.”
The report said that Middle East respondents indicated that government and central bank intervention was a major stabilising factor. A total of 59% of respondents believe that swift and powerful intervention globally was necessary, yet will not be sufficient. The intervention will need to continue to sustain the economy for an extended period of time.
Meanwhile, 50% of the global respondents believe that conduct regulation should not be relaxed to encourage trading and liquidity. A total of 69% of respondents suggest that regulators should actively seek the appropriate response through consultation with industry.
The survey was fielded to the global membership of CFA Institute across all regions and jurisdictions where the organisation has representation. The survey was sent on 14 April 2020 and closed on 24 April 2020. A total of 167,312 individuals received an invitation to participate. Of those, 13,278 provided a valid answer, for a total response rate of 8%. The margin of error was +/-0.8%.
