Half of investors believe market underestimating crisis, survey shows

Almost half of global professional investors believe that the market is underestimating the economic impact and severity caused by the Covid-19 pandemic, according to a survey carried out for State Street.

Some 54 per cent of the 250 institutional investors surveyed by CoreData for State Street expect it will be the end of 2021 before economy returns to a sense of normality, according to the results.

US shares put in their best quarterly performance this century in the three months to the end of June as the S&P 500 index soared almost 20 per cent to recover from a severe slump in March. European stocks, measured by the pan-European Stoxx 600, climbed 12.6 per cent during the period, their best quarterly performance in five years, though they were down 13.4 per cent for the first six months as a whole.

The rally was driven by unprecedented levels of central-bank and fiscal stimulus unveiled in recent months, as well as the easing of coronavirus restrictions in most western markets in recent times. However, many commentators say that the extent of the stock market surge is at odds with economic reality and ignores the risks of further waves of the virus.

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The International Monetary Fund has forecast the global economy will contract 4.9 per cent this year, with a recovery expected to be more drawn out than estimated in April.

The Central Bank projected last week that the Republic's economy will shrink by 9 per cent this year, with a more severe scenario, involving the recent lockdown having a more damaging effect than thought and not successfully containing the virus, resulting in a 13.8 per cent slump.

Still, 44 per cent of European respondents to the State Street survey believe fiscal and monetary measures being implemented will result in a faster economic recovery than that witnessed following the 2008 great financial crisis.