Money managers at the virtual Milken 2020 Global Conference were largely bullish about stocks, but they outlined a litany of risks facing investors.
Uncertainty on multiple fronts is leaving investors trying to position for a range of outcomes—even the possibility of burgeoning debt loads leaves the U.S. facing a systemic financial crisis or a move toward socialism.
The annual conference, sponsored by former junk-bond investor Michael Milken’s Milken Institute think tank, brings together business leaders, policy makers, money managers, and Wall Street power brokers and is taking place online through Oct. 21.
Myriad uncertainties created by the variance in how countries were dealing with the pandemic, populism, geopolitical tensions, and broader divisiveness are forcing investors to grapple with an array of outcomes as varied as a multidecade growth slump or 1970s-style stagflation and requires “an enormous” amount of diversification, said Bridgewater Associates CEO David McCormick.
CEO Kewsong Lee called out the uneven nature of the recovery, even within asset classes and sectors. And while the 2008-09 financial crisis saw a lot of solvent companies become illiquid, the massive stimulus this year has left a lot of insolvent companies that are liquid—including many in industries with existential issues ahead, Lee said. That requires caution as investors look through battered industries.
A lot depends on the trajectory of the virus, but Agnès Belaisch, Barings Investment Institute’s chief European strategist, played down the magnitude of the risk posed by recent rise in Covid-19 cases in Europe. At the beginning of the crisis, about 40% of the population was furloughed, but that is now down to just 6%. “It’s a slow process, but a process back to normal,” Belaisch said. She argued that European policy makers’ ability to get monetary and fiscal policy through without talk of austerity and a focus on