Liquidity trends in the wake of COVID-19:implications for portfolio construction
Tuesday 03 November 2020
News, Investment Talks
The asset management industry has navigated this liquidity crisis and emerged mostly intact from it, despite having been hit by outflows and precipitous drops in asset prices. However, the liquidity crisis has highlighted once again the importance of a powerful and active liquidity management policy through liquidity buffers, swing prices, stress tests, and access to a wide and varied range of counterparties or instruments that may prove more liquid during market stress. This is crucial to fulfil the fiduciary duty and stand ready to meet all redemptions during liquidity squeezes while keeping the portfolio’s structure unchanged in the interest of remaining investors. By doing this, large international players with global trading organizations may ensure the best mix of connectivity to liquidity venues and relationships with counterparties. Under extreme circumstances, they could even become liquidity providers themselves.
The Covid-19 crisis has triggered the deepest liquidity squeeze since 2008. Unlike the Great Financial Crisis (GFC), an unprecedented real economy shock led to extremely quick deterioration of financial conditions and showed that, under extreme circumstances, liquidity may dry up not only within risk assets, but also within risk free ones. The peak of this crisis hit in February/March. Market liquidity has improved noticeably since then, although it has not completely normalised yet and areas of weak liquidity remain.
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2020 post-election analysis: Biden wins, but the United States remains divided
Final result: Former Vice President Joe Biden defeated President Trump to become the 46th President of the United States. While Trump has not conceded yet, he became only the third President to fail to win re-election since World War II. In the end, the election was a referendum on Trump as a man rather than an indictment of his policies. A political realignment is underway, with GOP emerging as a working-class party and dominating the vote in rural areas, while the ‘Blue wall’ of the Midwestern stattes of Pennsylvania, Michigan and Wisconsin has become competitive for both parties.