Tuesday, October 26, 2021

Where is the World Economy Headed given Covid-19?

Given the ongoing Covid-19-led crisis, Aditya Vikram Singhal dwells on the expected outcome over the next few years

Given the virus and the ongoing crisis, I have had the time to summarise some of my key thoughts that I have shared with many of you over the last 7-8 years. The objective is to state the past and try and understand the expected outcome over the next few years. I am under no illusions that I could be wrong in my thinking, but am certain some of you will see the merits around the points below.

The Cause

Since the onset of globalisation which started in late 1980’s/90, the first major setback to the world that I have traded through was the Financial Crisis of 2008/09. Leaving aside the reasons for the crisis which are well documented, the basic principle to mitigate the effects of the crisis was Quantitative Easing (QE) which was initiated by the Western Economies.

  • The objective of QE was for Central Banks (FED, ECB, BOJ and others) to buy Government bonds and give money to the financial system (banks and other intermediaries) so that they could lend this money out to the broader economy
  • Central Banks alongside doing the above, brought interest rates down to zero, to further encourage transmission of money to the common man of the world alongside business both large and small

This was aimed to create growth via investments which in turn would bring some inflation and help common man /companies out of debt trap by inflating the value of assets. Furthermore, the motive was to also create cash flow (wages & earnings) that would have led to consumption and hence a cycle of healthy growth.


The Dilemma for Financial Intermediaries (Who to lend to?)

Having learnt the lessons of excessive leverage during the financial crisis of 2008/09, Central Banks and Governments from 2010 onwards wanted QE to work on one hand but alongside were worried about excessive risk taking. In order keep financial intermediaries & banks in check they imposed stricter capital and regulatory rules which prevented them from lending money to the broader economy the same way as Pre-financial crisis.

This created a dilemma as banks were under pressure to generate profits and were under huge direct and indirect pressure to keep fulfilling the role as defined above to keep providing money to the economy.

So the banks and financial intermediaries chose a different path. They decided rather than lending to a weaker credit worthy people/companies they were better off lending far more (in excess) to healthier entities which could be a person/family/company or any other (hedge funds/ asset managers/private equity etc.).


Why did this cause a crisis? (First Economic and then Social/Populism)

I would like to illustrate this via an example by taking London which is where I live in the UK. London is the same to the UK (30-40% of UK GDP) as what is Berlin+Munich+Hamburg+Frankfurt to

Germany and same principles applies to every Western countries alike. Hence easiest to illustrate my thesis.

London has highest per capita income in UK and there exists most credit worthy people/ families/ companies’ / asset manager’s / hedge funds etc. UK banks encouraged all of them to borrow more than what they needed at cheaper rates to fulfill the obligations set out via QE by Central Banks and Governments and prevented the flow of capital to weaker sections of the country (outside London) due to imposition of strict capital and regulatory rules.

As the money flowed into the hands of above entities in London at marginally close to 1-2% interest rates and some cases even lower, let’s take note of how money was spent not exhaustive by any extent.


  • Bought first and multiple properties in prime and semi prime London and started to create a real estate bubble which was totally distorted to the rest of UK housing market
  • Spent more money on discretionary items and holidays thereby creating credit fuelled growth. (borrow to spend).


  • Increased Debt levels by borrowing for 10+ years at low interest rates and started to buy back their own stocks to create unsustainable valuations

Asset Managers/ Hedge Funds

  • Started to buy the equity/debt of companies/ countries above both good quality and bad quality to generate higher returns and expanded investments in Emerging Markets & illiquid strategies in Developed Markets
  • Led to creation of Vision fund like entities as cost of capital was cheap and hence investments into firms which fundamentally should not have existed with high negative cash flows
The list goes on… These activities continued between 2010-2019 leading to the following impacts:
  1. Misallocation of money/capital became extreme as there was no fear of loss due to abundance of QE money via Central Banks
  2. Due to increased pressure to generate returns Banks/ financial intermediaries / companies/ asset managers etc. alike started to take lesser return for higher and higher risk
    • Hence investments in Africa and other Emerging Markets
    • Investments in Junk debt and stocks of some firms with large cash burns and so on
  1. Wealth disparity in society went up: Top 1% wealth vs 99% wealth ratio hit all time (or above example wealth of London vs Non London).
  2. Rise of Populism due to increased dissatisfaction in society due to social media proliferation (Facebook/Instagram and others increased social agony between have vs have not).

Having said that, not all things were bad, the free money also led to creation of some world class companies which could not have existed but they were a handful.

There was also a growing acknowledgement by 2015/16 that we could be in early stages of revolt by the common man. Brexit in 2016 (first revelation of populism), election of Trump and a few other examples within Europe showed the first sign of discontentment. However, human greed and Trump desire to further make Central Banks a puppet created another leg of the same between 2016 and today. In 2015/16 some Central Banks, did try to raise interest rates and reverse course but only to realize that the entire financial system and world was too addicted to free money (QE) and any change of approach would lead to economic depression.

Rise of Socialism (Equalisation of wealth) and/or destruction of Fiat cash

By early to mid of 2019, there was a sense of acknowledgement by Governments that society needed measures to equalise wealth to curtail populism and give people some kind of hope. Modi’s demonetisation, if not for economic had a social impact to allow for common man to vent his anger on the rich as he saw them suffer as people look for relative wealth equality and not absolute. Human beings sense of ‘self-worth’ comes from comparing our self to our friends or family and one saying encompasses all of this: ‘misery loves misery’.


Coronavirus acts as a catalyst to expedite the above as it’s not the virus but the coming age post virus that shall trouble us all …


As society suffers due to the virus and lockdown for the next 12-18 months, coupled with already created Economic and Social conditions as stated above, I see only one expected path forward.

  • Even the most Capitalistic governments will move to support 99% of population which is living on a month by month basis
  • To mitigate the fear of loss due to virus coupled with rising debt on a personal level and stress that comes due to inability to earn a living – governments will tax and socialise the middle class, upper middle class and the rich and in some nations forcibly take assets and worse we could see civil unrest /war.
    • We will see higher income/wealth/inheritance and other form of taxes
    • We will see higher regulation and compliance costs which is another form of taxes
    • We will see nationalisations even in most free market societies and so on…

To highlight the above via an example: only 0.5% of population of UK earns more than 150k GBP and increasing marginal tax rate above 150k GBP to 75% vs giving relief on basic tax bracket from 10k GBP to 15k GBP will be hugely popular and at some point enacted in some form.

Governments will also spend money and print money which is: enact fiscal policies (government spends money by issuing bonds) and ask their central banks to buy those bonds which in turns is same as printing money. However, all of these policies can’t be actioned to allow the rich to become richer, but will be done alongside above stated measures so that we see equalisation of wealth and some form of economic & social relative venting for the common man.

In this era how does one protect and enhance one’s wealth (for 1% of the population)

First of all, people need to keep their liability profiles in check (cost of living) and take less leverage as different countries will adopt different strategies and some richer nations will face huge socialist pressures vs some poorer nations could do excessive money printing and cause economic collapse. I rather not delve into country by country outcome but more in some basic principles to protect and enhance wealth for middle/upper middle class and rich which should work in most scenario’s and is based on two simple premise:

  1. Own some assets (% wealth) that are short of supply always which are tangible (ideally movable). If things get horrible these assets will hold value and act as tail hedge till world bounces back. Examples:
  • Gold and/or Silver: in physical form as its recognised culturally as a store of wealth and tough to replicate/mine and movable
  • Land: (farm land) which offers good agricultural productivity as it again has intrinsic value
  • Art: Again like gold it’s movable. Only certain accomplished painters who have few works will hold value but one needs to focus only on the Top 5 names
  • Safe house: Nature has given us a warning but there is relevance to having a secluded sanctity where one could survive with their family for prolonged period in case of chaos
  • Finally, if one lives in an emerging market country there is value in getting a developed market country passport for yourself & children as by definition you are more protected


  1. Governments will act for benefit of 99% of population and most governments will try and make a nation more self-sufficient (reduce external reliance on critical import items) and hence diversify businesses along this path. Examples:
  • Knowledge/information: in a world where data is on cloud, governments will like data farms on country’s own land
  • Any government spending which does not drain foreign exchange reserves. So for example more defence spending inhouse
  • Healthcare spending – preparing for next pandemic
  • Analysing country critical imports vs critical exports and trying to work with governments around solution on imports to be produced in house and so on ……

In Summary: The upper middle class and rich will suffer for capitalism to survive as politicians will have no choice but to act in support for many. Different countries due to inherent wealth and economic advantages/ disadvantages will propose different policies but all will have similar socialist bias to appease populism and in the long run try and lift living standards for the world as a whole but reduce the wealth gap.

I am big fan of Star Trek and in one episode they showcase perfect Utopia: a world free of money but all things taken care off and people free to pursue what they like. I will stop here but will encourage all who read this to give me feedback.

Aditya Vikram Singhal
Aditya Vikram Singhal is Head of Central and Eastern Europe Middle East and Africa Trading (Rates/FX/Credit) and Managing Director, Deutsche Bank, London. Readers can connect with him at Aditya.v.singhal [at] gmail.com

Related Articles


  1. Thank sir for your valuable point of view.
    I am a student of finance from India, in my early 30s, having my own business in real estate, ambitious and optimistic and have a lot of plans for my future.
    Optimistic and not allowing covid-19 to affect my dreams. Surely i analyse the need for change in my path, due to the same and shall keep that in mind too.

    My point is, I still believe that history will repeat itself as human being has an inherent nature of relying more on history, due to its known or documented possibilities.

    Definitely few ways of innovation could be possible. But government working only for 99 % people for upliftment and ignoring rich and 1% people, to create an equal society is more of an idealistic situation.
    Human being runs by greed and fear mostly.

    Also, businesses and government need to run hand in hand.

    In India, before globalisation, situations were more critical and the wealth gap was huge.

    In today’s time too, the leadership is perfect but without help/aids of businesses lovlbby government cannot work.

    Few of my points for your esteemed article.

    Awaiting your reply.

  2. Logically speaking right
    So for sake of creation indulging in unknown spirituality
    Human being bound to face consequences of karma
    But I can keep friends & family amused so long as they r having time with me
    Life is beautiful

    • Agreed sir … ultimately we live in finiteness of life and key is to practice good karma and enjoy with friends and family …. these times always tend to make us focus on what is important ..

  3. Hi Vikram,

    I agree with your point of views.

    I had read a book some thirty years back “FUTURE SHOCKS” and believe we are heading towards that scenerio.

    The present circumstances and more so with COVID 19, the world shall head towards a potential civil war between haves and have nots in the society, if effective social measures are not taken by the Governments.

    The economic upheavals and swings shall have wide impact on the high leveraged companies and their operations.

    Lets hope we do not deep dive into a long recession.

    Pleasure reading your article.

    Warm regards,

    CA Rajen Damani

    • Appreciate your comments … So discussions have already started to equalise wealth in society in different shapes !!! However nations will behave differently and i will in next piece try to address issues that India faces and some positives and negatives ….. The only thing that one should worry about is safety valve does not get damaged and we get civil unrest / war which is fate some nations will surely face esp in Africa .

  4. Hi Shrey

    thank you for your comment. . A few things to observe before I comment on what you said.

    Lets first assume all nations including India will print money : what works for India is as exports come down due to other nations becoming more self reliant or lack of global demand for Indian goods and services , India will also do the same but for critical items . In the case of India its mostly oil and if that was controlled ( prices ) or via in-house exploration we should see current account balance out. I will avoid delving into the capital account issue but if Balance of payments are mostly kept in check a nation can do fiscal in a indefinite basis and promote growth.

    Now to comment around your point, its the duty of government to allocate this spend this money (fiscal) correctly and promote industries that lead to employment growth especially when private sector is less willing to invest. All these measures should mitigate the problem but good governance is needed as pointed by you and human greed kept in check. One of those ways is to find wealth equalization measures in every strata of society and allow for the money multiplier or flow of capital smoothly via the economy. As stated correctly by you no point choking the money printed and it ending up in the hands of the few. Lets hope for India sake this does not happen.

  5. Dear Aditya,
    You took from the past & have given ideas on what would be in store past pandemic crisis. There is a lot of uncertainty at this point of time but I do believe that there is also a lot of resilience in our attitudes particularly of the the poor in India.
    Our major strengths are:
    1. Functioning institutions like banking, justice, education, healthcare & governance.
    2. Young population.
    3. An effective & visionary leader.
    However, our major drawbacks are:
    1. Deep rooted corruption in all walks of life whereby misuse of capital & negating the objectives of QE / credit lines.
    2. Educated but unskilled work force coming out of institutions. Structural weaknesses in the education system.
    3. Poor governance at state levels where the focus is more on vote banks & populism rather that developing the state as a whole.
    4. High on services but low on manufacturing technology .
    So what next ? In coming years, the government both at center & state have to invest heavily on building up infrastructure, irrigation & farmers’ cooperatives on the lines of Amul to create jobs, improve transport system and help farm output. Financial system has to pump money into adoption of modern technology & help expand manufacturing by identifying genuine entrepreneurs.
    Thank you,
    Brijendra Kumar
    Retd. Business executive.

    • As rightly pointed by you Sir , a lot of resilience exists in society but it’s need a few fundamental pillars to work in these times and flow of capital needs to remain to promote certain sectors that help increase employment and productivity .

      One factor that I would like to add to your list is INNOVATION … india needs to make 1-2 world class companies similar to amazon or Apple … the talent exists in india but we are way down the value chain and country must try and go up the value chain and the multiplier effect is enormous in both creating prosperity and employment . US does it well and not even Europe comes close .

  6. Dear sir,
    Very artistic yet real picture of tomorrow’s socio economical world painted with a broad paint brush showing strokes of each hair in it distinctly. Is it something similar what Karl Marx described in his Das Kapital?

    • Hi Vikas

      The objective was to give a most probabilistic outcome as I see things and the reasons behind it’s creation . Different nations will enact different means but principles will be same and I do intend on putting something together around how flow of goods and capital happens between nations and some failings which can lead to collapse .

      I have not read Karl Max work above but will now surely.


  7. I agree with you to a large extent but the fact is we have become materialistic in last about 50 years .
    Societies will continue to evolve and find means of existence
    Some sort of chaos due to uneven money distribution will definitely take place
    Finally do not hold /Stock which you cannot consume
    Live in harmony with nature .

    Above all keep limited ambitions

  8. In response to your article which I read , here are few of my views with whatever little I understand and have gained in the past few years.
    I will say it was very well articulated and explained why the wealth gap happened in economies of scale as well as developed one. As you said the correction stage will come in place and there will be no cheap capital available for the companies which was the case before because it was given to hedge funds/ private investors aka VCs/PE at dirt cheap interest rate ie.less than 2% for long term(10 years or more)to invest in companies/ventures and seek manifold returns over a period of time. Funds buying stock of loss making companies which worked on scale over profitability will reduce as there will be less takers of such companies in M&A.
    Most of the hedge funds like Tiger global, Black Rock and Bridge water have performed poorly against S&P 500 indexes in the recent past as compared to (1990-2009) where they have beaten the indexes by more than 5 percentage points.No more stock buy backs will happen in near future in publicly traded companies at crazy valuations.
    Masa Son is willing to sell his stock in Alibaba which has been like a gold mine for him fetching 6000 x return on investment of $20M. He reportedly told the press that he is off loading $14B in Alibaba stock to buy back the stock and slash debt on SB which is a part of $41B capital raise and put more money in his troubled portfolio companies.So as you said it wasn’t all that bad before,it will slow down for 1-2 years and there will be less risk taken by investors but it wont be over and will bounce back with a higher degree thats what I feel.
    I agree with your view point on making tangible assets at this time which can be liquidated if things go more worse than ever.I think these few years will be about sustaining businesses and not growth and scale. If businesses are able to sustain this period some how they will come out as a winner when things come back to normal ( this is for tech enabled companies and start ups who work on scale model and not profitability they would have to extend their runway by 2x.
    We as small company are on a better side this time as our burn is very limited and haven’t raised so there is no investor pressure of scaling the revenues.We went from $100,000 ARR in revenue last year to 0 this year in the first month but I am sure the markets will bounce back in next 6 months for travel and hotels as things cant be closed for ever.
    Capital markets will become more cautious as there will be scarcity of cheap capital now so free flow of money will stop in emerging markets like India.Chinese investors are still keen on investing heavily as they are eager to buy stocks at cheaper valuations.
    But I am really disappointed with the way things are being functioned in India for middle/upper middle class,as the government has done absolutely nothing to protect them or the businesses which are small and need support compared to other developed countries.
    My feedback-: It was well written with comprehensive knowledge of the capital markets which you have with so much experience into markets and trading. I agree with more or less every thing stated here. It is more of a wait and watch period for the markets but will bounce back for sure.
    Thank you.
    Anubhav Agarwal (Co-Founder) https://www.bookbyslot.com


Please enter your comment!
Please enter your name here

Stay Connected


Latest Articles