If the coronavirus outbreak can be contained in the west as it has been in China there could be a short sharp economic downturn followed by a recovery in six months’ time, according to one of the UK’s biggest investment managers.
Keith Skeoch, the chief executive of Standard Life Aberdeen, said the recent sell-off in global stock markets – which recorded their biggest losses since the 2008 financial crisis on Monday – reflected “pure panic” among investors about a coronavirus-driven economic downturn and an oil price war.
“Asset prices are suggesting that a global recession is around the corner,” he said, but he insisted recovery could be underway by the autumn if the west could emulate the containment seen in China.
Skeoch also called for the chancellor, Rishi Sunak, to set out a bold plan to help the economy in his budget on Wednesday: “The chancellor tomorrow has a splendid opportunity to put in place a significant fiscal stimulus without the risk of inflation.”
He said an emergency stimulus package would be needed to help the economy cope with the impact of the coronavirus outbreak, focused on support for small and medium-sized businesses to help them survive cashflow problems.
As coronavirus spreads, the Edinburgh-based Standard Life, which manages £545bn of assets, has suspended all international travel for its staff. Its employees in Asia-Pacific have been split into “red” and “blue” teams, with some working from home and others working in the office, and the firm is planning to extend this to the UK and the US in the coming weeks.
The company was formed in 2017 when the Scottish insurer Standard Life merged with Aberdeen Asset Management. It warned of further market turbulence as it posted a 10% drop in pre-tax profits to £584m last year, as clients withdrew billions from its funds. Outflows totalled £58.4bn, including £41bn lost when Lloyds Banking Group ended a contract with Standard Life.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said the results were better than the market expected, and anticipated cost savings from the merger between Standard Life and Aberdeen had been increased.
However, he added: “Unfortunately conditions now looks to be conspiring against the group. A collapse in equity markets worldwide will do little for the group’s fee income, and a specialism in emerging markets means SLA could be hit particularly hard if investors become more risk averse.
“That’s part and parcel of being an asset manager – but with the group struggling to hold on to assets under management in the good times it’s not well placed to weather a downturn. Management’s warning of turbulent times ahead could prove something of an understatement.”
Separately, M&G, a rival fund manager that was spun off from Prudential last year, said further market turbulence “could have an impact on our capital strength”.
It said the steep losses in global markets in recent weeks had knocked 10 percentage points off its solvency ratio, a key measure of its capital strength, to 166%. A level above 100% indicates insurers have enough capital, although regulators usually want to see a higher number.
“We do not know what this virus could throw at us,” said John Foley, chief executive, adding that the firm was preparing for the possibility of remote working in the UK, while its Milan office was closed following a government lockdown.
M&G manages assets worth £352bn, up 10%, reflecting strong investment returns last year. It reported a drop in annual profits to £1.14bn from £1.6bn, with net client outflows of £1.3bn in its savings and asset management division last year, with outflows from asset management outweighing savings inflows.
Asset managers have been buffeted by a number of factors in the past year, including Brexit uncertainty, US-China trade tensions, competition from cheaper index-tracking funds and most recently, the coronavirus.
Analysts at JP Morgan said the results were “mixed”, but maintained their overweight rating on M&G shares.
