Much has been written about the effects of the virus on the world and on the stock market. This article is one analyst’s take on some of the likely impacts and on how we should look at companies.
We discuss financial repression and capital controls, why interest rates will stay low for some time, ripple effects such as the potential for inflation, and the need for balance sheet restoration by both corporate and personal sectors. We then consider the implications for companies and equity investors, looking at the likely greater desire for stronger balance sheets by the corporate sector, the need to onshore elements of the supply chain and the implications for equity valuation, working capital and income funds. Finally, we look at how this will lead to corporates ‘kitchen-sinking’ reserves, and why we believe one result will be that more fraud is exposed.