Money & Business

Lessons Learnt from the Pandemic

What were the biggest financial stories that came out of the pandemic? How should investors approach ESG? Yves Bonzon, Group Chief Investment Officer at Swiss Wealth Manager Julius Baer tells it all.

Shortly before the 2008 financial crisis, you pulled out of equities. Surely, you could not have seen the COVID-19 pandemic on the horizon? 

That’s correct. I would describe the 2008 crisis as an endogenous mechanism. It had drivers that you could track, monitor, and understand. We were able to understand the kind of policy response that needed to be implemented to stem the contagion effect in the system.

The COVID-19 pandemic was of a very different nature. The economic system at the time was very solid and stable. The world economy and financial markets were hit by something that some have compared to a natural catastrophe. By definition, you cannot predict earthquakes reliably. You know they can happen, but it’s the strategic structure of your portfolio that protects you against these unpredictable events.

I think the pandemic’s biggest story is all about acceleration.

Yves Bonzon
Yves Bonzon, Group Chief Investment Officer

How do you respond when they happen after all? And what have we observed last year? Although we did not predict the pandemic, we navigated it very well and, to a certain extent, took advantage of opportunities in market. Why? Because we understood what was needed from governments to stabilise the economy and shield the private sector from permanent losses, including the negative wealth effect of falling asset prices.

The policy response has been amazingly rapid. In the 1930s, during the Great Depression in America, it took a few years for the government to develop the correct policy response, including debasing the dollar against gold. In 2008, it took approximately a year and a half until we got the right policy response from Washington. Last year it took three weeks. It’s a tremendous progress.

What was the biggest financial story to come out of the pandemic?

I think the pandemic’s biggest story is all about acceleration. Digitalisation in the economy was accelerated. Furthermore, the transition towards a new approach to macroeconomic policymaking, including the use of fiscal deficits, was accelerated.

The combination of the technological uncertainty plus the regulatory unknown make the future of crypto extremely hard to predict.

Yves Bonzon

Right in the middle of the pandemic, cryptocurrencies were hitting their all-time highs. The topic was all over the news. What does it mean for the financial industry?

There is a lot to say about crypto. In fact, I don’t like to call them cryptocurrencies because I think essentially, they are crypto assets of various kinds. Some are currencies, including the stable coins, some are assets of the equity kind, some are assets of the fixed income kind, some are hybrids of all of this. I think it’s a disservice to the case for crypto to call them currencies.

Having clarified this, I think the impact is very difficult to grasp for the following two reasons: There is a technological issue and we know that cryptocurrencies can have dramatic disruptive consequences for the centralised financial system. However, all of this is a function not just of technology, but of what governments will allow and how regulations will evolve.

The combination of the technological uncertainty plus the regulatory unknown make the future of crypto extremely hard to predict.

I think ESG, unfortunately, has in some instances been leveraged for storytelling and commercial purposes. However, it is a topic of utmost importance.

The industry realised that we should not just talk about this subject, but we should be very concrete. We have coined in the Sustainability Board at Julius Baer: “We want to do good, we don’t want to feel good.”

Investors should look for how their adviser approaches ESG and ask themselves “What matters to me?” Finance cannot solve all of the problems of the world, but at least the industry is trying to move in the right direction.

Whether it’s the climate, social responsibility, inequality… There are so many areas in which you can have an impact. It’s fascinating, but you want to do it out of the true conviction that your investments can spark positive change.

What were your big reads during the pandemic? Which books do you recommend?

I’ve read ‘Artificial Intelligence Superpowers’ by Kai-Fu Lee, discussing the difference between Silicon Valley and China. The book is interesting in the wake of the regulatory crackdown on digital business models and data collection that has recently happened in China. Compared to when the book was written, it’s a potential significant gamechanger for China and Chinese assets.

Currently, I am reading ‘Noise’ by Daniel Kahneman, Olivier Sibony and Cass R. Sunstein. The discussion is about distinguishing the noise from what really matters and understanding that our decisions can be polluted by noise. I believe ‘Thinking, Fast and Slow’ by Daniel Kahneman is also a must-read for investors in order to understand how we react to news.


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