PIMCO’s annual Secular Forum this September was the 39th in our firm’s history – and the first fully virtual one. With input from invited speakers as well as our Global Advisory Board and other consultants, our global team of investment professionals zoomed (Webex-ed, actually) in on the post-pandemic outlook for the global economy, policy, politics, and financial markets over the next three to five years and discussed the implications for investors’ portfolios. Here’s what we concluded.

Summary

  • Four macroeconomic disruptors are likely to become even more pronounced over the secular horizon: China’s rise, populism, climate-related risks, and technology.
  • The two key swing factors that could produce upside or downside surprises are the state of the pandemic and the degree to which fiscal policy stays active or retreats.
  • Investment success over the secular horizon will likely call for actively managing portfolios both to withstand disruptors and to pursue the opportunities that disruptions create.

Secular Outlook

At the outset we reminded ourselves of the pre-pandemic secular framework laid out in our essay “Dealing With Disruption” in May 2019. Back then, we had anticipated “a difficult investment environment, subject to radical uncertainty and a range of secular disruptors” such as China’s rise and the resulting geopolitical tensions, populism, deflationary demographic trends, financial vulnerabilities related to valuations and pockets of excess leverage, and technology and sustainability issues that create winners and losers.

Sadly, major disruptions and radical uncertainty indeed unfolded this year, albeit from an unexpected source – the COVID-19 pandemic that has already cost more than one million lives worldwide, caused the deepest economic recession since the Great Depression, and sparked staggering fiscal and monetary policy responses.

We concluded that the core of our “dealing with disruption” framework remains intact: We believe investment success over the secular horizon will continue to be defined by being prepared for disruptions from a variety of sources and by actively pursuing the opportunities that arise when volatility occurs. This is even more important now that markets will have to grapple with the longer-term consequences of the pandemic shock, its propagation, and the policy responses.