Market recovery will unravel, investor Howard Marks warns
By Sean Farrell
Date: Wednesday 01 Apr 2020
(Sharecast News) - The recent global market recovery will unwind as the impact of Covid-19 increases, the economy slumps into recession and corporate defaults rise, a prominent distressed debt investor has warned.
Howard Marks, the founder of Oaktree Capital, told clients markets had further to fall and that signs of market recovery "reflected too much optimism". Equity markets have revived from their late March lows after governments announced big fiscal support for economies.
Marks founded Oaktree to make money from market turbulence caused by economic events. The $125bn group specialises in the distressed debt of struggling companies. He said US companies would struggle because they have high levels of debt taken on when times were better.
"The negative case encompasses rising numbers of infections and deaths, unbearable strain on the healthcare system, job losses in the many millions, widespread business losses and mounting defaults," Marks wrote in a letter to clients.
"If these things arise, investors are likely to shift from the optimism of last week to the pessimism that was prevalent in the rest of March."
Marks rejected hopes that the US would avoid a deep recession, pointing out that the US was behind other countries on testing and isolation of cases. He warned the world's biggest economy would struggle to balance the "conflict between social isolation and economic recovery".
"There will be a point where there doesn't seem to be an end in sight," he wrote. "The headlines are going to get much uglier." Marks also questioned how long it would take to get the economy back to normal after an extended period of near-shutdown.
His view is at odds with that of US President Donald Trump who said things would "get better all of a sudden. And it is going to be like a burst of light."
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