This is the tough journey that investors face. I would argue it’s uniquely complex, and that’s before factoring in the wrong starting point and an asset-management industry being hit by the nightmare trifecta of investor redemptions, falling asset values and negative relative performance for many active managers. Then there’s a host of uncertainties about the destination, an additional complication that is yet to be internalized by most analysts and investors.
While much will depend on the severity and duration of the coronavirus shock, there’s already evidence of potential changes to the post-crisis landscape — something that I am spending more time analyzing. And, returning to the risk factor characterization, they will impact interest rate risk as well as equity, credit and liquidity.
It is already clear that markets will be navigating through a huge increase in fiscal deficits and central bank balance sheets; large-scale corporate bailouts and the tricky political decisions that come with them about which sectors and companies to help and how to allocate support among people and different suppliers of capital (including within layers of the capital structure); omnibus legislation on payment holidays; and a big corporate rethinking of the cost-benefit analysis of globalized supply and demand chains.
These are only four items on my list of uncertainties about the post-virus economic and financial landscape, and it’s a list that is bound to grow the longer the economic sudden stops continue. It is a reality that investors will have to deal with, regardless of where they start out.
Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO. He is president-elect of Queens' College, Cambridge, senior adviser at Gramercy and professor of practice at Wharton. His books include "The Only Game in Town" and "When Markets Collide."