May 28, 2020 Equities

Study: Prospects for equity investors not tarnished by Covid-19

In defiance of all gloomy news, the earnings prospects of equities should remain intact for long-term investors even in the world after Covid-19 – this is the gist of a study published by the DWS Research Institute.

  • The long-term prospects for stock markets should not have been tarnished by the corona crisis.
  • Many of the corporations included in the major international stock-market indices are expected to be rather flexible and resilient.
  • Even if some corporations will cut or temporarily suspend their dividend payments, dividends should continue to be highly significant for the long-term success of equities.
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Since the beginning of the corona crisis the flow of gloomy news seems to be unstoppable: rapidly rising unemployment rates, whole sectors struggling to survive, plunging tax revenues, exploding public debt.

The obvious conclusion to draw should be a massive deterioration of the outlook for stock markets. But this is, according to the capital-market experts of the DWS Research Institute, not the case. Even if the severe economic frictions caused by the coronavirus are assumed to be the most exciting event of this century, the long-term outlook for equities remains positive. What is even more astounding: compared to the situation at the end of 2019, it has even slightly improved, the analysis concludes.[1] Five points on which this assessment is based.

1. The world after the corona shock – three scenarios

The experts presented three different scenarios:

  • Scenario 1: Everything continues as before as soon as corona is over (status-quo).
  • Scenario 2: The financial crisis of 2009 serves as a blueprint for forecasting the implications for the economy and the markets.
  • Scenario 3: The corona crisis is significantly deeper than the financial crisis of 2009, a once-in-a-century event in the negative sense.


Scenario 1 is highly unlikely for the analysts. Although the assumption that “everything will be as before” fails to grasp the extent and potential implications of the pandemic, surprisingly, the long-term outlook for equities seems to remain intact, even in scenario 3 with extremely negative consequences.

The corona crisis should dampen the economic growth potential only moderately.

2. Economic growth – a short-term shock but only moderate downturn expected long-term

What about economic growth? This is one of the vital issues for the development of the economy and financial markets. Particularly the development of corporate profits, a key driver for chances on the stock markets, is primarily influenced by economic growth (see chart).

In the face of the bleak growth forecasts in the wake of the corona crisis, it appears obvious to expect the outlook to be far from bright. However, in the long run, the current challenges should be put in perspective. The DWS Research Institute analysts assume that the global economy will finally recover, even if it might take longer this time than in previous crises. However, there is no doubt that the growth potential will suffer notwithstanding – over a ten-year horizon, the researchers forecast a structural weakening of growth, which should, however, be limited to modest 0.25 percentage points. .

The major international stock market indices include a multitude of flexible quality corporations which seem well positioned to cope with the consequences of the corona crisis.

3. Corporations are more resilient than they might appear at first sight

Headlines on distressed corporations are in the focus of public perception. The DWS experts consider companies with high fixed costs, high debt and low profitability to be particularly challenged. But once again, they warn against generalizing the currently extremely difficult situation and extrapolating it into the future.

DWS analysts thus conclude that the risk corporations described – due to their poor flexibility they are called ‘bricks’ – only account for a minor part of the listed companies worldwide. Particularly the big international stock markets cover a broad range of companies, most of which are extremely flexible, with a high share of quality companies.

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4. Dividends remain a central pillar for the success of an equity investment

Dividends have contributed roughly half of the total return of equities in the past. Dividend trends are, therefore, of paramount importance. Basically, there are two diametrically opposed developments. On the one hand, dividends are cut or even renounced due to the severe economic problems of many companies. On the other hand, dividend yields have risen due to drastically falling earnings. In aggregate, these two effects should roughly offset each other.

For investors in the S&P 500 or EuroStoxx 50, the dividend contribution to the total return of an equity investment could even rise modestly (by 0.3 to 0.4%). All in all, the yield contribution should roughly remain on the pre-corona level.

The experts do not expect here either that dividend payments will return to their pre-crisis levels quickly. The ‘dividend drought’ could well last for two years. Returning to the absolute 2019 levels could even take five to ten years.[2]

5. Return expectations for the major international stock markets remain intact despite corona

How is the long-term investor impacted by these developments expected over a ten-year horizon? After the DWS strategists had put together this jigsaw from a myriad of data and forecasts, the result was quite a revelation: even in the worst case, i.e. scenario 3 – assuming a once-in-a-century crisis – the outlook for equity investors has not deteriorated since the end of 2019, in some markets it has even slightly improved. Over a ten-year horizon, they forecast annual performances between just five (EuroStoxx 50) and 7.5% (MSCI UK)[3]


Conclusion for investors

The corona crisis has put the world upside down. It is expected to cause further turmoil in the economy and society. Uncertainty on the financial markets is extremely high short-term. But in the long run, there is considerable evidence that the situation will return to normal. The role of equities as an important potential yield earner for the long-term creation of wealth should remain unchallenged.

Return expectations for international stock market indices in the ten years to come




Scenario 1
Status quo

Scenario 2 Financial crisis 2009

Scenario 3
Once-a-century crisis

S&P 500





EuroStoxx 50





MSCI Germany










MSCI Japan





MSCI World





MSCI Emerging Markets





Source: DWS Research Institute, DWS Long View, as of May 2020

Forecasts are not a reliable indicator of future performance. Forecasts are based on assumptions, estimates, opinions and hypothetical models or analyses that may prove to be inaccurate or incorrect.

Performance of the past five years (12-month-periods)

Index 4/15– 4/16 4/16 – 4/17 4/17 –4/18 4/18 – 4/19 4/19 – 4/20
S&P 500 1.2 17.9 13.3 13.5 0.9
EuroStoxx 50 -14.0 20.9 2.0 2.1 -14.7
MSCI Germany -11.8 23.2 2.1 -1.9 -12.7
MSCI UK -7.4 20.1 8.0 3.0 -18.1
MSCI Japan -6.1 10.5 19.2 -7.2 -3.0
MSCI World -4.2 14.7 13.2 6.5 -4.0
MSCI Emerging Markets -17.9 19.1 21.7 -5.0 -12.0

Past performance, simulated or actually realized, is not a reliable indicator of future performance. Source: Bloomberg L.P., DWS International GmbH as of 5/1/20

1. DWS Research Institute, DWS Long View: The impact of COVID-19 pandemic on long-term return forecasts; DWS Investments UK Limited, Stand: Mai 2020

2. DWS Research Institute, DWS Long View: The impact of COVID-19 pandemic on long-term return forecasts; DWS Investments UK Limited,  Stand: Mai 2020

3. DWS Research Institute, DWS Long View: The impact of COVID-19 pandemic on long-term return forecasts; DWS Investments UK Limited,  Stand: Mai 2020

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