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Aviva Investors, the global asset management arm of Aviva, expects economic activity to continue to revive in the second half of the year, as lockdown measures imposed to inhibit the spread of the Covid-19 virus are gradually eased.

But the path back is unlikely to be smooth and the pattern will vary across countries and regions. Renewed outbreaks may need to be countered by the re-imposition of some restrictions.

The asset manager sees weakness being concentrated in Q2, with potential falls in GDP of between 10 per cent per cent and 20 per cent in the major developed nations. The rebound that began in May will be reflected in Q3 data, when output and demand are set to rise by 5 per cent to 15 per cent. Although this can be described as “V-shaped”, pre-Covid levels of activity are unlikely to be reached until the middle of next year.

Despite the uncompromising monetary and fiscal response, Aviva notes that there will likely be some permanent damage and loss, the exact scale and scope of which will not become apparent for some time. In addition, attitudes and behaviours may be different in the future because of the pandemic.

Conditions continues to be challenging, says Aviva, and investment strategies should aim to preserve capital and guard against downside risks. But they must also try to identify opportunities for a post-Covid world where good quality assets have been over-sold.

Michael Grady, head of investment strategy and chief economist at Aviva Investors, says: “We prefer to be modestly underweight global equities because of stretched valuations and elevated risks to the economic outlook. Our overweight position in credit is based on relatively more attractive valuation metrics, as well as being supported by central bank purchases.

“Within credit, we have a preference for US and European investment grade. In the sovereign space, we are modestly overweight, with a preference for the US where there is scope for further yield declines. This is partly balanced by an underweight in core European markets, although we also have a small overweight in Italy, which should benefit from positive developments in the EU Recovery Fund and other policy initiatives.”