After almost two months of lockdown across much of Europe, some countries such as Denmark, Germany, and Austria have begun to loosen restrictions on public and business activity.
However, in others such as Spain, the lockdowns have been extended, while in the US individual state governors may choose not to follow the recommendations of the federal administration.
Coupled with this, new information is emerging all the time about how markets and economies are reacting to the measures.
In our view, this ongoing uncertainty will present opportunities to add risk to multi-asset portfolios in the near future.
We are monitoring the crisis via four key pillars: the evolution of the virus; economic disruption and resumption; policy responses; and markets stress.
We believe we are currently in the transition from 'virus control' to 'assessing the economic damage'. So far, the combination of policy support and the perception of virus control in the Western world is boosting risk assets.
However, we are not out of the woods as significant uncertainty remains about the extent of the economic damage.
Despite this high degree of uncertainty and the wide range of forecasts for GDP in Europe and the US, as investors we need a base case to invest around.
Ours is for a recession in the first half of 2020 followed by a gradual and bumpy recovery in the second half, which should ultimately lead to a U-shaped recovery by the end of this year.
Such a recovery will likely mean learning to live with the virus with the help of innovations in areas such as vaccines, treatment and testing, changing habits and the ongoing policy support of governments.
Amid this uncertainty, we are nimble in our approach, using both the fundamental and market dynamics pillars of our investment process to identify opportunities.
In the short term, following the strong rally in stocks in March, we are positioned for a correction as markets assess the damage to prospects for the economy and earnings along with the risk of new outbreaks if lockdown restrictions are not executed effectively.
However, over a longer investment horizon, we think this is no time to sell risk assets. We remain confident that society will learn to live with the virus and the economy will recover.
As such, we are seeking opportunities to add to risk assets into market weakness.
Reflecting our base case, we are moderately long risk in our portfolios in a diversified way. We are overweight emerging and UK equities as valuations are historically very attractive, more so than in US equities.
China is also more advanced than the Western world in terms of business resumption and is an important source of commodity demand.
Both UK and emerging market equities stand to benefit from China's recovery and demand for commodities.
The crisis has left emerging market hard currency debt valuations very appealing, with risk premiums at about 600 basis points above the yields of US Treasury bonds. We expect aggressive global policy stimulus, more stability in commodity prices and an early recovery in China to support the asset class.
We are therefore overweight emerging market USD-denominated debt. We view hard currency debt as the safest sub-asset class within emerging markets.