The coronavirus pandemic will not lead to a recession despite plummeting markets and many European countries now on lockdown, retirement plan executives said.
Despite concerns about the virus' effects on economic growth and corporate earnings – especially equity markets, which have been falling since mid-February – European plans are telling participants that they expect the downturn to be short-lived.
The DAX index had fallen 37.7% as of Wednesday afternoon since Feb. 19.
The economic downturn will be temporary, with a recovery of the global economy in the second half of this year, said Poul Kobberup, investment director at the 500 billion Danish kroner ($75.6 billion) Danica Pension, Copenhagen, in a statement on the fund's website. A "heavy dip" in oil prices, caused by price wars between Russia and Saudi Arabia, has exacerbated financial market turmoil, Mr. Kobberup added.
Crude oil per barrel has fallen 56% since Feb. 1.
"The large stock market declines reflect, in our opinion, that investors see a considerable risk of a prolonged economic recession – but that is not our expectation. In that light, stock prices are actually looking relatively interesting now," he said.
However, equities accounted for a smaller portion of Danica's portfolio as of March 12 vs. a month earlier, the statement said. Figures were not immediately available.
Danish pension fund PBU, Copenhagen, also expects the downturn to be short-lived. Measures taken to fight the virus, such as travel restrictions and school closures, will be temporary, the 65 billion kroner fund said on its website.
Some plans are making changes as a result of the COVID-19 outbreak.
For participants close to retirement, the £10 billion ($13 billion) National Employment Savings Trust, London, will already "have taken steps to move their money out of the stock markets," said a notice on the plan's website. The majority of participants are unlikely to experience a long-term impact from shorter-term market falls, the notice said.
But NEST executives plan to take advantage of the fund's diversification.
"At NEST we've prepared for situations like this by diversifying our default funds so they are not overly reliant on any one asset class," Mark Fawcett, CIO of NEST, said in an email. "We're in a good position to be able to increase our equity allocation while markets are down and therefore help our (participants) benefit when markets begin recovering."
