Francesco Curto, Colin McKenzie & Dirk Schlueter, DWS
During this talk, we will discuss our latest research in which we use our experience of past crises to try to understand the impact of the current COVID-19 pandemic on long-term expected returns. We define three scenarios based on assumptions of differing severity of the pandemic. We use a bottom-up approach (rather than top-down), first analysing how fundamentals may have been impacted by the crisis, and how that flows through to expected returns.
The first scenario, ‘Status Quo’, shows the impact on expected returns from the sell-off in Q1. This scenario assumes that the long-term fundamentals driving returns have not changed because of the crisis. This may be a brave assumption on several levels. Therefore, we propose two alternative scenarios: ‘2009-repeat’ and ‘three-sigma’, with the latter assuming the crisis to be a once-in-a-century event.
We will focus on the similarities and the differences of today’s crisis compared to the 2008/9 crisis, as well as the potential implications for long term investors.