Where have all the fundamentals gone? Investing post-Covid: A report by The Economist Intelligence Unit

This exclusive report explores the key themes that will be vital for investment performance over the next five years.

Equity markets have shown extreme volatility in 2020 and become increasingly disconnected from economic fundamentals: markets are being driven up by central bank liquidity and fiscal stimulus, while the real economy is in one of the deepest recessions of the last 100 years. Meanwhile, the coronavirus (Covid-19) pandemic and geopolitical tensions are disrupting business models and may require radical changes in investment strategies. In this world of extreme uncertainty, The Economist Intelligence Unit believes that three key themes are going to be vital for investment performance over the next five years.

• No end to monetary stimulus in sight. With major economies unlikely to return to their pre-Covid-19 level of output for years, inflation and rising interest rates are not currently a threat. As a result, asset prices are likely to remain decoupled from economic data for some time, but fundamentals will affect relative performance.

• Prepare for a backlash. Investors should be braced for political shocks ranging from tax increases to disorderly sovereign defaults. Governments are likely to expect more in return from companies that they have showered with wage subsidies and loan forgiveness. Countries with adaptable economies and high levels of political cohesion will be the safest bets.

• Prepare for a bipolar world. Covid-19 has raised the stakes in the US-China rivalry, and tensions are likely to continue to rise regardless of who wins the US presidency in November. Countries and multinational companies will face growing pressure to show where their loyalties lie, and investors will need to consider the implications along supply chains. While the new order will also create new opportunities, some countries will be better placed to exploit them than others.

Find out more by downloading the full report.