Investment firms do not expect the US economy to mount a rapid ‘V-shaped’ recovery from the crash caused by the coronavirus pandemic, according to a new survey by the Boston Consulting Group (BCG).
The survey, which includes respondents representing firms with over US$4trn of assets under management, said 87% of those asked did not see a rapid bounce back to pre-crisis economic levels and growth rates, instead they expected any recovery to be either “U, W, or L” shaped.
Meanwhile, the data showed that 55% of respondents expected the “severe” economic impact of the crisis to have ended by the third quarter of 2020, however, 23% said it could last until the fourth quarter of the year.
Bearish for 2020 but bulls could return
Looking ahead, 60% of investors surveyed said they were ‘bearish’ in their outlook for the remainder of 2020, while 25% were neutral in their outlook.
However, BCG highlighted that respondents were “increasingly bullish” for 2021 and 2022, with 55% either bullish or extremely bullish for the next calendar year, rising to 63% for the year after.
Companies given “unexpected” flexibility to weather downturn
For companies themselves, BCG indicated that while investors had clear expectations, they also appeared to be offering “financially healthy companies unexpected flexibility to navigate the crisis”.
The survey showed that 79% of investors wanted firms to provide or revise guidance for the current fiscal year within the next three months, but only 56% thought it was important to deliver earnings per share (EPS) in line with revised guidance for the current year.
Instead, the survey showed 89% of respondents wanted company directors to prepare for the economic “bounce back”, building advantaged business capabilities to “drive future growth—even if it means guiding to lower EPS or delivering below consensus”.
BCG also highlighted that investors supported “some typically unconventional near-term moves that would previously have been ‘off-the-table’”, with 73% of survey responders saying firms should be “ intensely focused on preserving liquidity even if it is at the expense of investing to achieve advantage in the business”.
Meanwhile, 63% thought companies should not aggressively repurchase shares despite low valuations, and 53% were comfortable with firms not maintaining their dividend in the near-term.
Acquisitions on the agenda
While investors may not be in favour of share buybacks during a period of low valuation, the survey data showed that the downturn in company values could instead see additional pressure for acquisitions.
BCG said 58% of investors believed business should “ actively pursue acquisitions” to strengthen themselves over the period, while 59% predicted that there will be an increase in investor activism and firms should take steps to reduce the risk of such activity by “strengthening their businesses' near- and medium-term fundamentals”.