2nd April 2020
Today's view from Brewin Dolphin:
Global Shares Rebound
Share markets rebounded sharply last week as numerous countries unveiled more stimulus packages to cushion the impact of the Covid-19 pandemic. After a 33% fall, global shares have now rallied by 16%.
Market Conditions Remain Challenging
Last week saw the first sense of the economic impact. It was extraordinarily bad. Worse than any objective measure of expectations but not bad enough to upset the market on the days when these data come out. This reflects the fact that the market already knows the economy has effectively stopped. How could any of us have missed that? The question is not how deep, but how long and what is being done to minimise the second-round effects of unemployment and credit defaults.
Have we reached the bottom?
It is worth noting that, in market terms the length of a recession matters much more than the depth of it. If the economy can get back up to speed quickly, as was the prediction from economists in the earliest phases of the spread, then that need not lead to a particularly severe bear market. Also, the conditions to mark a bottom have not yet been decisively satisfied, although many conditions to suggest we are near the bottom have. The topping out of the volatility index (VIX) – aka the fear index – (at a level which would be difficult to surpass) tends to happen when the market still has longer to fall, but historically not much further.
1st April 2020
Today’s update from our investment partners HSBC Global Asset Management:
- Last week saw risk assets stage a rally, with global equities posting a strong set of returns. This was driven by US equities which posted their strongest weekly return for 11 years. Government bonds also posted positive returns
- Investors reacted positively to the support measures announced by a range of governments who are trying to support their economies through this current period of uncertainty. There was a coordinated package from policy makers with, for example, the US government announcing a USD 2tn support package and the Fed announcing that they were willing to by an unlimited number of Treasuries and corporate bonds
- There are tentative signs that the restrictions / lockdowns in place in many countries may be helping to slow down the growth in the number of cases. However, US case growth currently appears to be fairly consistent and President Trump has announced that their restrictions will remain in place for at least another month
- The measures in place in various locations, including total lockdowns and social distancing policies will undoubtedly have a severe impact on the global economy, so the length and strictness of these restrictions are key points for investors to monitor, along with the rate of case growth
- China has started to lift some of the restrictions in the Hubei province, including in Wuhan. However, 54 new cases have now been announced in Wuhan, appearing to be due to imported cases
- Therefore, while last week’s positive performances across a range of asset classes has provided some welcome respite for multi-asset investors, we need to remain cautious about the way forward from here
- Last week’s positive moves across various asset classes has provided some respite for investors, with positive returns seen in both portfolios
- Volatility remains elevated. Six months ago. movements of 2% in one day would have seemed unusual. Over the last few weeks, market moves of over 5% have become common place
- The diversified nature of our portfolios has provided exposure to a range of asset classes.
- Global equities delivered strong returns in their local currencies. However, sterling appreciated significantly over the week, leading to softer returns when converted back to GBP.
- Market volatility remains high, mainly due to the uncertainty surrounding how the COVID-19 situation is going to evolve.
- While many global economies are operating with high levels of restrictions, the hit to the global economy will continue.
- There have been some positives over the last week, with policy makers stepping in to provide support and some reduction in the restrictions in place in China.
- However, the emergence of imported cases back into the region creates cause for caution.
- It appears that many economies will continue to operate under a degree of restriction for the foreseeable future. The US have announced that their restrictions will remain in place for the next month. In the UK, the government has said that they will review the situation every 3 weeks, but that it is likely that restrictions will remain in place, in one form or another, for up to 6 months
- We believe that the stimulus packages announced by governments, along with coordinated action from central banks, can provide some support to the global economy.
- However, it is likely that volatility in markets will remain elevated. There may be periods where markets perform well, as we saw last week. However, there is still potential for markets to reverse in the short term as the situation evolves.
30th March 2020
A Discretionary Fund Manager we work closely with, today comments:
Weathering the storm.
We were unable to predict the COVID-19 pandemic, and the depth of the disruption has surprised us all. No one knows how much further this has to go and it is hard to call a bottom to markets. However, the results of isolation appear to be encouraging for controlling the spread of the virus. Central banks and governments have now put in huge measures to offset the disruption and to make sure businesses are in a position to take advantage of the recovery when it comes. We are entering a recession but equity markets have adjusted sharply. Whilst the uncertainty can be scary, it is worth remembering that this is not the first recession we have been through and it will not be the last. Recessions are temporary.
Those tempted to sell now should keep in mind that getting back in at the bottom is difficult. The low in equity markets is usually marked by the worst news flow and panic selling which discourages investors. When we get bounces as we have seen this week they can be fierce - we saw a 15% rally in two days. For now we see markets continuing to be volatile but bear in mind central banks and governments are prepared to do even more if necessary.
When we take a longer view and look through the present crisis and come out the other side, we expect interest rates will still be low, earnings will recover and equity markets will once again be the asset class of choice for investors.
26th March 2020
Today’s market analysis courtesy of our investment partners at LGT Vestra. Cleary caution remains the watchword:
After another volatile week in markets we've seen most major markets reverse some of their losses following news of a $2 trillion stimulus package from the US Government. On the positive side we are also starting to see China gradually return to some normality. Italy also appears to be showing some slowing in the number of fatalities, although the number of new cases remains alarming. Elsewhere, in other parts of the Europe and America we still seem to be some weeks away from the peak of the crisis and further volatility should be expected over the coming weeks and months.
Announcements today showed that the US has seen an unprecedented surge in initial jobless claims to 3,283,000 last week. To put that into perspective, claims have never exceeded 700,000 in a single week before. However, the nature of this crisis means we could see a sharp reversal of this number relatively quickly if the spread of the virus shows signs of being contained over the coming weeks and months. The market has taken a relatively sanguine view of this announcement and the S&P has rallied strongly again today as I write.
Our central investment committee has been meeting daily and across medium risk portfolios we have decided to make a change to our fixed income exposure. At the present time, with further volatility expected over the coming weeks, we are happy to maintain our higher cash allocation which has provided some ballast over the last month.
The LGT Vestra investment committee continues to meet daily. Yesterday, the main talking point was the $2trillion stimulus package which was finally agreed by the Republican and Democrat leadership in the US overnight on Tuesday. The full text was not available, however, the rumour of it had caused a 10% rally in equity markets yesterday. Markets opened higher again and later gave up some of those gains but got some support towards the European close. The package includes specific support for some hard hit industries, such as airlines and manufacturers, and improved unemployment benefits. The Federal Reserve has also supported markets by announcing a lending program to corporates and purchasing short dated investment grade corporate bonds. We have been waiting for this package to emerge, and while it has passed the Senate, Congress still needs to approve it. While the package is overdue, it is nonetheless welcome news. The US is rapidly becoming the biggest centre for new cases of the Covid-19 Coronavirus with New York hit particularly hard. President Trump persists in saying that he expects the US to be back to normal with churches full for Easter, however, this seems highly unlikely and he will face a lot of opposition from state Governors. He is weighing up the economic damage from measures to prevent the virus spreading against the damage the virus could do to American people.
The equity market had risen steeply overnight, and we discussed adding equity, but decided that the Coronavirus news could get worse again, particularly in the US, so decided to hold off on this.
26th March 2020
Please find below a table which has been put together by Technical Connection and acts as a great aide memoire regarding the recent announcements from the Chancellor. It looks at Individuals, employees, the self-employed and businesses/employers. Also provided are specific links at the end of this note referring to Scotland, Wales and NI.
|Individuals / Employees||Self-Employed Individuals*||Businesses / Employers*|
|Time To Pay Scheme||Potential to agree payment of tax (e.g. income tax) in interest free instalments. Time to pay helpline for those affected by coronavirus: 0800 015 9559.||Potential to agree payment of tax (e.g. income tax) in interest free instalments. Time to pay helpline for those affected by coronavirus: 0800 015 9559.||Potential to agree payment of tax (e.g. income tax /corporation tax) in interest free instalments. Time to pay helpline for those affected by coronavirus: 0800 015 9559.|
|Salaries||Coronavirus Job Retention Scheme: will reimburse an employer with up to 80% of the pay of an employee who is not working but kept on the payroll (“furloughed”).Up to a maximum of £2,500 per month. Currently no clarity over conditions, definition of salary maximum, impact on auto enrolment contributions, or national insurance, and applicability to shareholding directors (“owner managers”).||Coronavirus Job Retention Scheme: will reimburse an employer with up to 80% of the pay of an employee who is not working but kept on the payroll (“furloughed”). Up to a maximum of £2,500 per month. Currently no clarity over conditions, definition of salary maximum, impact on auto enrolment contributions, or national insurance, and applicability to shareholding directors (“owner managers”).|
|Sick Pay||Currently £94.25 a week, rising to £95.85 for 2020/21, would be available to employees from day one instead of day four, including for those advised to self-isolate. However, there was no change in the minimum earnings threshold for SSP (£118 a week currently, rising to £120 a week in 2020/21).||See Benefits below.||Businesses with fewer than 250 employees can be refunded for the cost of SSP for up to 14 days. The size of an employer will be determined by the number of people they employed as of 28 February 2020.|
|Benefits||From 6 April 2020, for 12 months, the standard allowance in Universal Credit (UC) and the basic element in Working Tax Credit (WTC) will be increased by £20 a week over and above the planned annual uprating. This will apply to all new and existing UC claimants and to existing WTC claimants.||For those not entitled to SSP (e.g. the self-employed and gig economy workers), Contributory Employment and Support Allowance (ESA – a basic £73.10 a week for those 25 and over, rising to £74.35 in 2020/21) will be claimable from day one instead of day eight. To ensure that time off work due to sickness is reflected in benefits, the minimum income floor** in Universal Credit (UC) is temporarily removed if an individual gets coronavirus or has to stay at home because of it. The minimum income floor won’t apply to anyone after 6 April 2020. This will last until the coronavirus outbreak is over. The stated aim is to ensure every self-employed person can now access, in full, UC at a rate equivalent to SSP for employees.|
|Grants||£10,000 grant for all small businesses (that pay business rates and qualify for small business rates relief) if it qualifies for small or rural relief. HMRC will make contact. For small business relief the rateable value of the property used by the business needs to be valued at £15,000 or less.£25,000 grant for businesses in hospitality, leisure and retail whose rateable value is between £15,000 - £51,000.||£10,000 grant for all small businesses (that pay business rates and qualify for small business rates relief) if it qualifies for small or rural relief. HMRC will make contact. For small business relief the rateable value of the property used by the business needs to be valued at £15,000 or less.£25,000 grant for businesses in hospitality, leisure and retail whose rateable value is between £15,000 - £51,000.|
|Business Loans||Business interruption loans are available to small and medium businesses from 23/03/2020 for up to £5 million, interest free for 12 months. This scheme will help any viable business with a turnover of up to £45m.||Business interruption loans are available to small and medium businesses from 23/03/2020 for up to £5 million, interest free for 12 months. This scheme will help any viable business with a turnover of up to £45m.From 23/03/2020, the Bank of England’s Covid Corporate Financing Facility will provide a quick and cost-effective way to raise working capital for those large firms who need it.|
|Mortgages||For those in difficulty due to coronavirus, mortgage lenders will offer at least a three-month mortgage holiday.|
|Renters||Emergency legislation to suspend new evictions from social or private rented accommodation while this national emergency is taking place. No new possession proceedings through applications to the Court to start during the crisis. Landlords will also be protected as the three-month mortgage payment holiday is extended to Buy to Let mortgages.||Commercial tenants who cannot pay their rent because of coronavirus will be protected from eviction. No business will be forced out of their premises if they miss a payment in the next three months.||Commercial tenants who cannot pay their rent because of coronavirus will be protected from eviction. No business will be forced out of their premises if they miss a payment in the next three months.|
|Business Rates||Business Rates holiday for businesses in hospitality, leisure and retail for 12 months.||Business Rates holiday for businesses in hospitality, leisure and retail for 12 months.|
|Self-Assessment Payments||Self-Assessment payments due 31 July 2020 deferred until 31 January 2021 - interest and penalty free.||Self-Assessment payments due 31 July 2020 deferred until 31 January 2021 - interest and penalty free.||Self-Assessment payments due 31 July 2020 deferred until 31 January 2021 - interest and penalty free.|
|VAT||For the period between 20 March 2020 and 30 June 2020, businesses will not need to make a VAT payment. No special application needed. Businesses will have until the end of the 2020/21 to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the Government as normal.||For the period between 20 March 2020 and 30 June 2020, businesses will not need to make a VAT payment. No special application needed. Businesses will have until the end of the 2020/21 to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the Government as normal.|
*Note that, because some elements of business support are devolved, the measures a business can access may differ if it is in Scotland, Wales or Northern Ireland:
**The minimum income floor is usually what someone of the same age would earn if they worked at the National Minimum Wage for the number of hours that the self-employed individual is expected to work or look for work. Normally, if the self-employed individual earns less than the minimum income floor, UC will not make up the difference.
Source: Technical Connection
The links to the assistance being given in Scotland, Wales and Northern Ireland are set out below
25th March 2020
Please find below an article which refers. As I write, the markets have bounced significantly in the last 24hrs. Whether this is a short or long-term trend, time will tell. More updates on this page regularly. More importantly, please keep safe and well.
David Penny, Managing Director
20th March 2020
Naturally with events surrounding Covid-19 information is continuously changing. This is placing uncertainty on day to day lives and financial markets. Investors will have received news updates on stock market falls, the outlook for the economy and the potential outcomes to this systematic world event. Although no one has a crystal ball to navigate these unpredictable times, we have endeavoured to summarise the key views of our three investment solution providers: Square Mile, Margetts and RSMR:
Square Mile Asset Management
- The outbreak has now reached more than 50 countries and although the virus has established itself in key locations there is some evidence that China’s methods for containing could be slowing the spread. This seems to be the strategy for most countries; to slow the spread to allow health services to care for the sick.
- Eliminating the disease would appear optimistic in the short term, but the severity in comparison is less than that experienced by past generations.
- The costs will have a short term impact on the economy, but Square Mile believes governments will bear the majority of the financial cost and will borrow more.
- A fall in interest rates should not be underestimated in supporting equity markets, however there is a growing likelihood that countries will enter technical recession as a result of the outbreak.
- Square Mile take a measured approach to market sentiment and are cautiously positioned as long term investors.
Margetts Fund Management
- Since Covid-19 gained a foothold in Italy and Iran markets have fallen sharply. This was compounded by the failed OPEC talks to agree cuts to oil supply, which resulted in the oil price falling sharply from a combination of lower economic activity and higher oil supply.
- Data Margetts has researched suggests the outbreak in China is under control and that the country is now in the decline phase for new cases, but this could be different in other countries depending on the response by governments.
- Stimulatory support from central banks and governments will be important to any economic impact and contrarily, could lead to significant upside, should the downside risks outlined diminish.
- Although market trends have favoured US Markets, Margetts are monitoring this in light of recent events of the slower response to Covid-19 and the impact of a falling oil price.
- Margetts' view is that Covid-19 is a temporary setback, with evidence not supporting a full-scale pandemic. Long term investors should not panic in their view. The firm expects higher volatility to continue in the short term with forced sellers due to overleveraged positions or computer program triggers.
Rayner Spencer Mills Research
- The impact of the Coronavirus together with the sudden sharp fall in the oil price has raised serious concerns in financial markets that a significant economic downturn has now started. In terms of the market, the question is at what stage investors will regain confidence that the situation has been brought under control.
- The reported cases are in greater numbers than that seen in the 2003 SARS outbreak, but at present information gathered on mortality rates is significantly lower. A key risk is the spread to third world countries where health care resources are less developed.
- As China is central to the outbreak, economic improvement in the region is likely to improve sentiment. There is some evidence of manufacturing outside of Hubei province recovering activity and ports back in operation.
- For the time being, RSMR accept there will be higher market volatility. A return to stable corporate earnings and a lower discount rate attributable to these earnings is necessary for a sustainable market rally both regarding the impact of the Coronavirus and the fall in the oil price.
- For those with longer term investment horizons, RSMR’s view is that this is not a time for significant portfolio change and clients should not assume that they have the skill to time entry into or out of markets to maximise returns.
18th March 2020
17th March 2020
Global stock market movements over the last week 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 for entire nations including the lockdown by the Italian government, the draconian measures announced by President Macron in France last night and the new tightened measures introduced by the British Government. Not to mention the growing problems faced by the US and elsewhere around the world in response to the pandemic. With this backdrop, LGT Vestra, one of our investment partners, has provided a simple and straightforward analysis of the current investment landscape, their 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 by disagreements last week between OPEC members, leading to the oil price falling from $60 a barrel at the start of the year to around $30 today.
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.
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 uncertainty. The concern for investors is that this develops from a health crisis to a liquidity crisis and beyond.
We all know that markets fear uncertainty and the global economic impact and the threat of recession is an unknown. However, what is becoming clearer is that we are beginning to witness a sustained and coordinated response from governments and central banks, such as the Bank of England and the Federal Reserve in the US with fiscal packages and a cut in interest rates. We anticipate that this over time should support markets.
Whilst this current situation is undoubtedly worrying over the short term, we continue to remain committed to investing for the long-term prospects of portfolios. We would urge caution and restraint in these volatile conditions and do not recommend any change to your investment strategy that you have agreed with your financial adviser, in light of recent events. We are investing in line with your risk profile and time horizon and as such, we would recommend that you remain invested in accordance with this, rather than to sell out, realising losses.
13 th March 2020
It has been stormy in the markets of late with a number of factors responsible for this, including of course Covid 19.
This communication is intended to provide some information and reassurance. Please note if you have any concerns or queries at all you feel you would like addressed, do make contact and we will be fully available to help.
Covid 19, very little business interruption and our service to you
Invest Southwest has an existing Disaster Recovery Plan which has been updated and improved in the light of the likely virus led interruption in the next few weeks. We have already implemented specific policies within the business with staff able to work remotely, fully, with our communications systems equally able to be operated remotely. Thus we are confident we will be able to continue to deliver you a full service throughout whatever these next few weeks throws at us.
With immediate effect we are endeavouring to minimise human contact. Where possible we are endeavouring to cancel/postpone meetings and conduct them remotely via telephone or Internet. Where a face-to-face meeting is a strong preference, we can accommodate this of course.
The markets: the effect on pensions, savings and investments
Our generic volatile market advice is below. Specifically focusing upon Covid 19 and the current market volatility, whilst as always, the doom and gloom can be quite worrying, this remains simply another normal event in the life of markets and investments. Whether or not we have reached the point of maximum fear is moot, but the general principles described below apply now as ever.
- Are your investment objectives and attitudes the same?
- Are you still investing for the same period and the same purpose?
- Do you feel the answers you gave in the attitude to risk and reward questionnaire remain accurate?
If the answer is yes, then rising and falling markets is entirely in keeping with the asset allocation modelling process; there will be assets within the investment at any given time doing well and doing badly. There will be years when the investment as a whole falls. It is no surprise at all that this is happening now, or indeed ever, with at least one asset at any given time.
If your objectives &/or attitudes have changed, then talk to your adviser who will rework the models and potentially rebalance your investment.
- Is it a good idea to withdraw money from your investment?
- Is your recently fallen investment going to continue to fall?
- Should you take the money out before it falls further?
The answer is the same answer given when the investment was made. If any expert says that the market is about to fall or rise then they are speculating. We can find you experts who would express the full range of potential future outcomes ranging from massive gains (good time to buy) to massive falls (withdraw everything).
Any commentator you hear who expresses a firm view about future movements could be right or could be wrong. All we or anyone else knows is that a fund has in the past gone up or down but no one knows about the future. We do not know whether any investment is going to go up or down.
The beauty of the asset allocation model is that we should not need to worry about market ups and downs because the spread of assets over a long period should ensure reasonable performance in line with your attitude to investment risk and reward. There will always be assets falling within a portfolio somewhere.
If you as a client feel strongly then we can of course very happily withdraw funds into a deposit style fund or rework the asset allocation to reflect a more cautious attitude to investment risk and reward.
We will happily do this whenever you like with no additional fee. Our advice would be if your situation, objectives and attitudes have not changed then to continue with the asset allocation recommended.
The Invest Southwest process is to tailor an asset allocated investment model to your personal circumstances and objectives; then rebalance this at least annually. Each fund within your investment is managed continuously by the fund managers; it is only our asset allocation model which is amended annually. If you would like an even more immediate, continuous, proactive asset allocation process we could consider utilising a Discretionary Fund Manager with higher fees – talk to your adviser if this appeals.
If you do need all or part of your investment to spend in the near future, then you should consider moving out of fluctuating funds into cash. If this is the case, talk to your adviser. If not, then our advice remains accurate. Use the asset allocated model portfolio to guide how your investment should be spread.