Assets Allocation Strategy Concepts and Portfolio Optimization Strategies – Lessons Learned from COVID-19 Crisis

Now is the time for a stimulus package designed to ensure the recovery of the financial sector and the economy. State action will be essential to get the economy back on track quickly. Depending on the specific situation, such actions may include tax cuts and revisions, the provision of cash transfers and subsidies, and increased spending to finance certain sectors or projects. Such approaches may be subject to active discussion, but there are strong arguments in favor of making significant public spending an important element of the stimulus package.Such actions will have a long-term impact on the economic system. Assuming that investments will have the same effect in the short term, some of them will be more effective in terms of long-term sustainable economic growth and poverty reduction. Therefore, taking into account the prospect, due to the urgent need to meet immediate needs, one should not forget about the goals of a longer-term nature (thus complicating their achievement).An important place among such goals is the construction of a low-carbon model of the world economy and the achievement of long-term benefits resulting from this. The choice of this or that stimulus package will affect the ability to achieve these goals - it will predetermine the risks, but it will also open up opportunities.For example, the tax reform element of the package could lead to new tax rates for fuel, energy or carbon, as well as various incentives to reduce carbon emissions. The recent fall in world oil prices is allowing the subsidizing policies currently pursued by many countries to be revisited and these resources redirected towards more effective measures aimed at reducing poverty or boosting economic growth while shifting from fossil fuels to other energy sources.A wide range of investment projects can be used to create jobs and generate income in the short term and provide long-term benefits in the form of sustainability and economic growth. Examples include projects to improve the energy efficiency of existing buildings, the production of renewable energy sources, the protection or restoration of natural areas that provide ecosystem services and resilience to floods, droughts and storms, land reclamation, investments in water treatment and water supply systems. and sewerage, or the creation of environmentally sustainable transport infrastructure, from bike lanes to subway systems.The need for such a stimulus package may be months away, but now is the time to decide on its optimal structure, develop projects that are ready for immediate implementation, and formulate strategies to help get the job done.When responding to a crisis, there is no need to start from scratch: projects that are already included in countries' national or sector plans, as well as climate change adaptation plans, and reflected in nationally determined contributions under the Paris Agreement can be used. Projects should then be assessed for their relevance to the objectives of the stimulus package, which should take into account various temporal and sectoral aspects, including:• Short-term benefits related to incentives and job creation, including the number of jobs created and their match with local skills and competencies, the need for domestic or imported inputs, and the timeliness of the project: how quickly these jobs can be created. places?• Benefits in the medium term associated with economic growth, including maintenance costs, the number of permanent jobs after construction is completed, or the level of private investment attracted.• Long-term sustainability and contributions to decarbonization, including assessing the country's current and future emission trends, protecting local ecosystems and biodiversity, and impacts on long-term growth potential (for example, through better education or improved public health, reducing local levels of air pollution or reducing potential damage caused by floods).Many projects will be very attractive in all three aspects. Energy efficiency, clean energy and sustainable transport systems are clear win-win areas for investments under the stimulus package. An example is the package implemented in 2008 in the Republic of Korea, where significant funds were allocated for these areas; the main emphasis was placed on the restoration of rivers, the provision of energy efficiency and the development of environmentally friendly transport. The country managed to organize the effective spending of funds, and by the first half of 2009, almost 20 percent of their amount was disbursed.Projects for the restoration of degraded forests and landscapes can provide jobs for many in the short term; they also generate net benefits in terms of watershed protection, higher yields, and access to non-timber forest products that can be in the hundreds of billions of dollars in value terms. For example, a reforestation project in Khumbo, Ethiopia, has generated income growth, restored 2,700 hectares of natural forest land that is a habitat for a variety of biodiversity, and provided incremental benefits from carbon sequestration. The increase in forest cover has also helped reduce the area's vulnerability to drought.Another clear opportunity to create multiple jobs and support economic recovery comes from massive building renovation projects designed to make buildings more energy efficient, more comfortable and healthier, and better adapted to a rising global temperature in the future.Including public works programs in the stimulus package will enable the poor to cope with the immediate negative impacts on their livelihoods caused by the COVID-19 crisis. The scale of such programs can be quite significant: in the National Program for Guaranteed Employment in Rural Areas. Mahatma Gandhi, which is carried out in India, involves 80 million people, and the Mandiri National Community Self-reliance Program in Indonesia, 10 million people. Many of these programs are related to irrigation, reforestation, soil protection and watershed development. If carefully selected, they can help transform the economy in the long run. In Ethiopia, a social welfare program combined with productive activities helps to increase resilience and adaptability by investing in the creation of assets owned by local communities. These investments are intended to reverse the degradation of the catchment area and ensure a more reliable water supply.As a rule, large infrastructure projects in the fields of energy, transport, water or urban development are not easy to include in stimulus packages - they take a long time to prepare. However, the unique nature of the current crisis may allow for a promising portfolio of green infrastructure projects to be built up when stimulus measures are needed. Such projects may include the deployment of a large network of electric vehicle charging stations, the construction of dedicated lanes and bicycle lanes, the construction of power lines and distribution networks, the expansion of water supply and sanitation services, or projects aimed at improving the comfort and reducing the energy intensity of the environment. a habitat.For those of us confronting the threat that climate change poses to the hard-won global development gains, the current crisis brings a premonition of impending danger. But if you approach the development of response measures strategically, then it is possible to ensure both short-term and long-term results that would meet both national and global interests.Prospects for business development in Russia after the COVID-19 pandemicToday, the business environment in Russia is experiencing an ongoing epidemic caused by the Covid-19 virus. In the event that the crisis proves to be protracted, there is a high probability that several million entrepreneurs in Russia will not be able to continue functioning and will be forced to stop their activities. In the current situation, in the context of the coronavirus infection, it will be difficult for even large companies to stay on the market for more than two to three months.According to experts, the sectors most affected by the epidemic are tourism, restaurants, services and entertainment, air travel, etc. However, it cannot be argued that the crisis has not affected other sectors of the economy, since all sectors are interconnected and cannot function in isolation. If large companies can hold out on the market for a few more months, then medium and small enterprises will find themselves in an extremely difficult situation, losing up to 90% of their revenue during the epidemic.To make it easier to endure the consequences of the current situation, the state has taken measures to support Russian companies. However, according to many experts, the measures proposed by the state, in particular tax incentives and state subsidies, will not be enough. There are elements related to the extension of the loan, but this is not a compensation, but an extension, and therefore entrepreneurs have no income. Obviously, the business will fall sharply and completely stop its activities. Many credit entrepreneurs lose their bank-linked assets. This is completely obvious. Many companies will inevitably go bankrupt, because in such conditions it is easier to go bankrupt than to keep paying someone and trying to look good when you are playing a bad game. The smaller the company, the more likely it is to leave the market.Low-margin restaurants and hotels do not have the safety margin not only to endure two or three months without income, but also with expenses, especially for maintaining wages. In the future, this situation of entrepreneurs will lead to a chain reaction in the development of the banking environment. The reflection will partly manifest itself in problems with servicing existing loans and deposits. Still, health is a priority: first you need to normalize the health situation, and then think about the economy.As we can already see, the main negative impact on borrowers is not the extension of holidays as such, but a general decline in economic activity, which already leads to a decrease in the income of small businesses, and, accordingly, to a decrease in the income of employees working at these enterprises. Representatives of the banking community state a significant increase in the number of applications for restructuring business credit obligations.The government has accepted interest free payroll loans as a support measure for the industry, but it should be noted that these are still loans that will need to be repaid and it is not clear how long the current situation will last. Now the industry is focusing on those measures that will allow it to somehow exist in the current situation. For example, some enterprises are ready to take loans, someone is negotiating with the largest online retailers about the temporary transfer of employees to them, for example, to the position of couriers.At the same time, realizing the importance of supporting small and medium-sized enterprises and despite some potential for the survival of large enterprises, this is still limited to short-term prospects. The state, paying attention to small and medium-sized enterprises, forgets about the presence of a large retail network, which is also a partner of small businesses both in the form of franchising and in the form of wholesale purchases. State support measures, without which it is impossible to roll back, should be extended to all affected market participants.Manufacturers and suppliers of goods, who, despite the situation with quarantine, rush demand and currency dynamics, must ensure the uninterrupted supply of food to consumers, immediately began to switch to a round-the-clock mode of operation or worked in two shifts. The load on them constantly increased not only because of the sharply increased demand, but also because of additional difficulties with passes and interruptions in the work of suppliers of raw materials and containers.In the context of extending the self-isolation regime, food industry enterprises simply needed support measures.For example, easing obligations on bank loans in the event of a deterioration in financial results, tax holidays, the constant provision of employees of enterprises with personal protective equipment, the solution of any problems associated with the issuance of passes for the transport of food products, and protection from pressure and fines from trade networks.In many companies, the mood was close to panic. A third of companies do not know how to survive this period of downtime. The remaining two-thirds see the solution in obtaining permission to partially open the most important organizations. If permission is not obtained, then the whole country will face an emergency. Equipment, regardless of the epidemiological situation, tends to fail, and even at the level of elementary replacement or repair of equipment, consumables are required. And then, in any case, permits will have to be issued, but in a different mode and with great losses for everyone. Today, many companies are still operating at the risk of fines.Undoubtedly, it is too early to assess the consequences of the coronavirus epidemic for the global and Russian economies. However, we can assume that we are waiting "around the corner", since all the major countries have already defined their strategies to counter today's difficulties.First, it should be noted that more than 80 developing countries have applied to the IMF for financial assistance totaling $2.5 trillion.Secondly, the fall in prices for most commodities (not just oil) is more than 30% for the CRB index, one of the main ones, and returns the markets to the price levels of 20 years ago. In fairness, it should be noted that world prices for some types of raw materials (foodstuffs and especially cereals) have increased by 10-15% since the beginning of the crisis, but now they are returning to their previous level.Thirdly, the level of interest rates in the world returned to the level of 2008-2009, after all the major Central banks brought their rates to the minimum values. [four]Fourth, the G20 countries at a "virtual" meeting on March 26 agreed to add more than $5 trillion to the global economy in the form of monetary and fiscal stimulus.However, many scientists are wondering what our economy will be like after the pandemic and whether it will be able to return to its original position, albeit with a slight decrease in growth rates. On the one hand, you may not see the correct answer. And on the other hand, thoughts arise about layoffs, about people who were left without work and without money, economic crises, mass bankruptcy - the possible consequences of a raging epidemic.Despite the crisis in many business sectors, there are those industries that have increased their sales due to the emergence and spread of a new coronavirus infection (production and sale of products, medicine, online entertainment, etc.).Particular attention should be paid to the oil industry, which, after unsuccessful negotiations between the OPEC countries, has lost its position in the market.The drop in demand by almost 20% led to a serious crisis of overproduction, the filling of all possible storage facilities, the freight of all available tankers for oil storage. An extension of this situation for three to six months will lead to the forced shutdown of a large number of wells, and not only in shale. But it also threatens to freeze investment in new projects and halt current ones, which could create much more problems than a simple excess of oil. As a result, many small and medium-sized businesses may not survive this crisis, but those who remain will be happy to share it.But will we return to the lifestyle we led before the crisis, or will we have new business habits and attitudes that we formed while sitting at home?Rental of premises, remuneration of employees, organization of business processes around the “office space”, as previous experience shows, are associated with great risk. No hardware failure, no problems with contractors, no traditional financial difficulties, but a completely different risk turned out to be the key - the decision of the state to stop business processes.It is highly likely that after the release of quarantine, the largest companies and owners of small and medium-sized companies will begin to prepare strategies for the transition to a distributed business model. On the way to a model in which employees move to "home" offices as often as possible, and communication is carried out not even by e-mail or video chat, but using virtual substitutes for meetings, presentations and presence. Of course, the workplace in the home of such an employee needs a significant update. It is not for nothing that a sharp increase in demand for modems and routers is now recorded.Undoubtedly, the fight against coronavirus is a noble and very expensive task. But, solving it, the state simultaneously changes all the rules of the game in the economy. It turned out that in some situations it is possible:- stop the daily conduct of business for very noble purposes;- restrict the freedom of movement of goods and people on the same grounds;- change the usual tax system that has developed over the years;- to leave almost all economic activity in a state of uncertainty without any forecast of a return to normal life.Therefore, a sustainable business model after the crisis will be based on proximity to the state. It can be assumed that the largest company in Russia, together with Gazprom and Sberbank, will turn into a universal market (conditional "public services"), where it will be possible to concentrate most of the necessary services and provide the population with the most necessary services in a timely manner - first services, and then goods. [one]IIInternational Scientific and Practical Conference Energy companies may face serious financial problems due to a decrease in demand for energy resources, which can move from cyclical and speculative to structural and permanent. [5]The transformation of the economy towards the long-awaited diversification has not yet gained the necessary momentum, and there may not be enough money for fiscal stimulus for structural adjustment due to the crisis in the commodity market.Competition can help improve the efficiency of the economy, but fewer and fewer of those who can compete remain in the private sector. And after the epidemic, they will also need investments to transfer their business to the post-crisis model.ConclusionThus, the following conclusions can be drawn.The conclusion is that the state economy will only expand its positions, and in these conditions, the issues of employment, the minimum guaranteed income, and the creation of a unified state IT infrastructure come to the fore. To solve such problems, a stable budget and its stable filling at the expense of tax revenues are needed.The new distributed business model combined with end-to-end robotics could lead to higher unemployment. As a result, the demand for social security will increase, and economic relations will become less capitalist and more socialist. [four]In such an environment, economic growth and growth/recession issues will fade into the background. The focus will remain on stability, mainly to meet the basic needs of the population. 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