An analysis of the current investment landscape – 18th March 2020
Global stock market movements over the last few weeks have been unprecedented and nothing short of dramatic.
The sell-off of shares around the world has been heightened by the measures governments are imposing to try to restrict the spread of the disease for entire nations including the lockdown by the Italian, Spanish, Cyprus governments to name but a few; the draconian measures announced by President Macron in France on Monday; added to which we have new tightened measures recommended by the British Government and the growing problems faced by the US and elsewhere around the world in response to the pandemic.
We have therefore looked to provide a simple and straightforward analysis of the current investment landscape, a summary of our and wider industry views as to how the market might behave in the short-term and why it is important to remain calm and remain invested.
The continued spread of coronavirus and the wide-scale quarantining across the world has led to fear over reduced global demand and disruption of supply chains.
The impact of this was compounded last week by disagreements between Saudi Arabia and Russia, leading to the oil price falling from $ 60 a barrel at the start of the year to around $ 30 and a huge fall in the share value of many oil companies.
Equity markets have fallen dramatically in response to these events and for the most part, indiscriminately.
Some sectors have been hit harder than others such as energy and smaller companies which have led the sell offs, as well as those companies with complex supply chains and businesses reliant on discretionary consumer spending. Some business are now using this opportunity to restructure their business and regrettably, some businesses won’t survive this.
It has become clear that the impact of the virus is likely to be with us at least for the medium term and in response, consumers are likely to save rather than spend in the face of adversity and the uncertainty so consequently will not be going out as much.
The concern for investors is that this develops from a health crisis to a liquidity crisis and beyond.
We’ve mentioned previously that investment markets don’t like uncertainty and the global economic impact and the threat of recession remains an unknown.
However, what is becoming clearer is that we are beginning to witness a sustained and co-ordinated response from governments and central banks, such as the Federal Reserve in the US with its fiscal packages and a cut in interest rates and our own governments major increase in support with their £ 330bn pledged yesterday.
We anticipate that this, over time, should support markets.
China is getting back to business
Interestingly, whilst the coronavirus outbreak in Europe and the US deepens, economic activity in China, where this all started, is slowly returning.
Again, China has poured in financial support of around $ 430bn and certain areas such as transportation, logistics and property are picking up.
Who’d have thought you would be pleased to see a traffic jam, but they are returning in China.
Whilst this current situation is undoubtedly worrying over the short term, we continue to remain committed to the long-term investment prospects and would urge caution and restraint in these volatile times and would not recommend any change to your investment strategy you’ve agreed with us, in light of recent events.
Those of you currently taking income should already have sufficient holdings of cash to continue those income payments without needing to sell any assets, meaning that you have more time to wait for an improvement
We will continue to invest in line with your risk profile and time horizon and as such, we would recommend that you remain invested rather than to sell out which would have the certainty of realising losses.