“What is coming next? That is the big question. Have we seen the bottom or will there be a second wave?” asks Igor Burlakov, the chief business officer of Sova Capital, sitting in his London office with a view over St Pauls from his window in the heart of the city.

The global capital markets have been roiled by the series of shocks that just keep coming in the last two months. But some investors are starting to look forward again to what comes next.

“All the investors are asking this question and in the last three weeks there has been plenty of action,” says Burlakov. “This is the largest storm ever. It is bigger than 2008.”

The references to the 2008 crisis have become common place. Many in the financial markets have been calling it the GFC, the Great Financial Crisis, but given the extremes of this crisis, featuring a huge oil price shock, a deadly global pandemic that has killed 150,000 people and now most recently negative oil prices for the first time in history, not to mention a global climate crisis that is still running in the background, the name GFC may need to be rethought – or at least enumerated into the GFC I and GFC II, in the same way as the two world wars were.

The recovery must come at some point and usually markets can look forward to sustained growth as they climb out of their depression. Investing in Emerging Markets (EMs) has never been about “buy and hold,” taking the 8% that equities usually pay out on average over the long-term. They are about timing.

Spectacular returns can be made if your timing is right. The Russian dollar-denominated Russia Trading System (RTS) fell from a high of around 800 in the autumn of 1997 to a low of a mere 38 in the autumn of 1999 before climbing, almost without break, to its all-time high of 2487.92 on May 19 2008 and the start of the GFC I.

This time around, the swings have been more modest: the RTS fell to a low of 667.1 set in the midst of the last oil shock on December 17, 2014 to a high of 1,644.2 on January 21 this year. That rebound took six years, but the phrase “super cycle” is also being bandied around and in theory, the depths of this crisis will be another vintage year to invest. Investors are impatient for the markets to reach the bottom of this crash.

Burlakov argues that Developed Markets (DMs) will recover first and recover faster than EMs, as they have a lot more tools at their disposal to repair the damage.

wThe selling started at the end of February, but got really ugly after Russia pulled out of the OPEC+ production cut deal on March 6 that set off a price war with the Kremlin’s erstwhile partner Saudi Arabia.

“At the start of March everyone dumped all their financial assets and cash was king,” says Burlakov. “But now cash is trash.”

With interest rates at zero or less you can’t make any money on holding cash. The International Financial Institutions (IFIs) and Central Banks went into what is now a well rehearsed routine of slashing rates and dumping huge amounts of money into the markets to cushion the blow and try and put a floor under the fear investors were feeling.

The European Central Bank (ECB) and the US Federal Reserve bank have cut rates again into real negative territory, but some say the Fed in particular fired its bazooka too soon as a cut to zero percent interest rates in March was shrugged off by the market in a matter of hours. Now the emphasis will shift to spending in order to lift the markets again. And various plans are floating about. The US government has already promised to spend $2 trillion, the IMF $1 trillion and the EU is talking about creating a new pan-EU Eurobond, so countries can raise huge amounts of money, but share the burden with their EU peers and spread the repayment cost out over decades. For an investor, when this efforts start to gain traction then that is the time to invest.

“The key is to go into top quality assets and stay invested,” says Burlakov. “The DM economies should see a V-shaped recovery and it is even possible to see the financial markets reach new all time highs. The EMs will have a more pronounced U-shaped recovery with a longer bottom. They will be slower to recover as they have fewer fiscal and monetary tools to stimulate their recoveries.”

One of the most fundamental choices to make is: what to buy? Debt or equity?

Burlakov argues that with negative real interest rates and low absolute nominal interest rates suggest that equity will perform best. Burlakov says the recovery for the equity markets will be seen over the next three to six months with the US, Europe and China as the top performing geographies likely to show V-shaped recoveries. The best sector will be tech - those companies unaffected by supply chain disruptions.

Burlakov also recommends investing in the best vertically-integrated oil and gas majors as a second plank to a longer-term investment strategy. The current low prices will hit shale producers, which have higher break-even prices, the hardest. There’re likely to be many bankruptcies and lower investment into production as a result.

While supply dwindles and demand recovers, the large oil and gas companies stand to benefit. “Oil prices will be back above $50 in one to two years,” predicts Burlakov. “The winners from that will be major oil and gas players -- Russian, Saudi Arabian, European and American.”

Separately Burlakov believes that the consumer habits will be profoundly changed by the coronavirus pandemic and people will spend more time at home, so companies in the non-food retail segment should do well over the medium-term.

Fixed income could also be appealing, but buying bonds is a question of cherry picking. Investment grade bonds and high-yield quasi sovereigns are favoured by Burlakov in the current environment.

In the previous crises investors often bought bonds for their security and for the cash income they produce from the coupon payments. Typically, there was a big, but relatively slow moving, rally on bond markets until the equity market began to grow.

This is what was happening over the last five years or so in Russia and more recently Ukraine. Yield hungry investors were not prepared to invest into equities but snapped up Russian Ministry of Finance ruble-denominated OFZ treasury bills which were paying a hansom 9% pa only two years ago. But starting in about 2017 some investors started cherry picking amongst the Russian blue chip equities which had become “too cheap to ignore.” While the overall index remain unchanged year to year, the individual names, starting with the X5 Retail Group supermarket company, began to double in price. Finally, by the start of this year there was a ground swell of equity buying that started to lift the RTS index as a whole to its January peak.

In parallel, the Ukrainian bond market was hooked up to the international clearance and settlement system last April and the bonds with a 19% yield rapidly sucked in some $5bn of international capital. But the tiny Ukrainian equities market never got to the point where it could attract any serious interest from international investors.

“Real interest rates have become more negative and nominal rates are flat,” says Burlakov. Even if there is a spike in inflation central banks are not going to hike interest rates. The winner in this set up will be the blue chip debt. There are plenty of opportunities with significant spreads like Russia, Saudi Arabia, Qatar and Israel.

Investment-grade sovereign and high-yield quasi sovereign bonds are best, but it gets more complicated when looking at corporates that are less likely to get a government bailout.

The landscape for corporate debt is more exposed to the extreme volatility that still plagues the market, so each company has to be judged on its specific merits, says Burlakov, but there are some real bargains out there.