Equity markets have taken heart from the signs of a gradual return to work aided by additional stimulus packages. Whilst some of the economic data appears to be improving, the numbers still indicate that the global economy has incurred significant damage. Brexit negotiations continue with the EU and UK looking as far apart as ever.
Infection rates and the numbers of deaths in general continue to trend down. The measures taken to restrict activity appear to be working. As measures are relaxed, there remains a danger that we will see further spikes, particularly if the measures are relaxed too fast and mass gatherings take place. Protests over the death of George Floyd and crowds on UK beaches may lead to further outbreaks. The UK Government says it is following expert advice; however, it would appear that you can find expert views pointing in any direction you like. Our understanding of how the disease works appears to be improving, and suggestions that T-cells can play a role in resisting COVID-19 may indicate that there may be greater immunity in the population as a whole than previously thought. However, many experts still caution on a second wave in the autumn.
Fiscal and monetary update
While the EU package is still in negotiations, held up by the ‘frugal four’, Germany agreed a further EUR 130 billion package of support measures, including a EUR 20 billion cut in VAT. The European Central Bank (ECB) lived up to expectations, announcing a further EUR 600 billion in its Pandemic Emergency Purchase Program (PEPP). As noted above, the proposed EUR 750 billion EU funded mix of grants and loans remains bogged down in negotiations for now.
Away from virus related stories, Brexit trade negotiations failed to produce a conclusive result. The UK refuses to move on fisheries, the acceptance of EU regulation post-Brexit and the role of the European Court of Justice, amongst other things. Michel Barnier is restricted by the mandate he has been given so the room for compromise was limited. It will now be back to European Commission President Ursula Von Der Leyen and Boris Johnson to see if any compromise can be agreed. The UK Brexit bill set the 30th of June as a deadline for agreeing a new trade agreement, but EU leaders appear to be talking of discussions going on to October. A no-deal Brexit looks likely, but despite the words to the contrary, a last minute deal or an extension to the transition period may still be possible.
It has been a positive week for equity markets and developed market government bonds fell as yields have moved higher. Peripheral European bonds, particularly Italian bonds, did better given the latest ECB action. Value stocks that had dramatically underperformed during the coronavirus sell-off have begun to outperform as markets recover. Given the lack of progress on the Brexit trade negotiations, the pound has held up surprisingly well, this may not be a reflection of confidence in the pound but rather weakness in other currencies. Changes to the FTSE 100 Index reflect the changes in our lives. Travel and tourism suffer under coronavirus while people in lockdown have more time to do home improvements. If the recovery continues then in a few months’ time this may reverse. After all, Kingfisher had been in the index until March when it dropped out. This makes us question the use of index trackers who tend to add stocks that have gone up already and remove them when they have already fallen. We continue to advocate taking a more selective long-term approach to equity investment.
The rally in equities has built a degree of momentum and may continue for some time, supported by continued low interest rates. Central bank support for bonds and credit markets is here for the long term. As stock markets recover, they become more vulnerable to setbacks and we expect volatility to be high in the months to come.
The last week has generally been positive for equity markets as lockdown restrictions have eased around the world. The proposed European Union (EU) stimulus package was largely well received but is still opposed by the ‘frugal four’: Austria, Holland, Sweden and Denmark. At the end of the week, rising tensions between the US and China dented the earlier positive sentiment.
While we understand that the statistics are not entirely reliable, the infection rate and the number of fatalities in many countries are falling. Whilst this is welcome news, every death is a tragedy and many of us have friends or family who are mourning the loss of a loved one. South Korea, who had appeared to have effectively contained the disease, saw a new outbreak. This reminds us of the danger of a further spike in cases. In reassuring news, there is continued optimism that a vaccine can be developed sooner rather than later. Anthony Fauci, the US government’s top infectious diseases expert, said that there was a good chance that a vaccine could be available by October.
The big news of the week was the EU’s proposed package of measures to support the economy, which built on the proposal made by President Macron and Chancellor Merkel last week. The present proposal appears to amount to EUR 500 billion in grants and EUR 250 billion in loans. This would be funded by the EU borrowing directly. They would aim to raise money with EU wide taxes on tech and carbon. Whilst this was more than expected, there are doubts about whether this can get approval from all 27 countries and even if it does, it may take some months to come into effect. The objection is to grants rather than loans, where the burden is shared across the union but hard hit southern countries are the major beneficiaries. As with many things EU related, negotiations will go on and it is likely a compromise will eventually be agreed.
Against the background of the COVID-19 crisis, Brexit negotiations continue. With only one more round to go, the negotiators on both sides continue to have very different ideas about the outcome. There appears to be little real progress on the key sticking points such as fishing rights and an even playing field for regulation. The UK insist that they are treated like any other country, while the EU believe that because of proximity they need tighter rules for fair competition. EU negotiator Michel Barnier’s hands are tied by the mandate he has been given and the demands of individual countries within the EU. We are getting close to the deadline for concluding an agreement, which may focus minds on a compromise.
Equity markets responded positively to the EU proposals and the proposed gradual re-opening of economies. China’s decision to impose additional security laws in Hong Kong caused that market to fall sharply at the end of last week. This has not helped US/China relations that were already tense, as President Trump blames them for the economic damage caused by coronavirus. A renewed trade war would not be good for the global economy and would be poorly received by equity markets.
Markets have recovered a large part of the losses in the first quarter. Many technology stocks have reached new highs and the US Nasdaq Index is up 4% year to date. However, wider indices remain substantially lower this year, with the FTSE 100 down 18%. We have seen big daily moves and a very wide dispersion of returns within markets. In the short term, equity markets balance economic stimulus and lockdown easing, against the risk of a second spike in the virus and trade wars. In the UK, Brexit adds a further level of complication.
Latest update from our investment partner, LGT Vestra:
Last week saw falling rates of COVID-19 infections and moves to gradually ease restrictions on movement in many countries. In the UK, Chancellor Rishi Sunak announced an extension to the employment support scheme to October. A more cautious note taken by Anthony Fauci, Director of The US National Institute of Allergy and Infectious Diseases, offset this better news. His warning against reopening schools too soon appeared to put him at odds with President Trump who remains keen to ease lockdown measures. As expected, the economic numbers continue to be dire with US unemployment at 16%.
What is clear from looking at the past is the need to avoid a prolonged problem; governments should not raise interest rates or taxes and should not restrict trade. We have seen phenomenal monetary and fiscal stimulus so far which has gone a long way to support financial markets. However, the political rhetoric is building for a renewal of the US-China trade dispute and in the UK, a leaked Treasury report talked of higher taxes to pay for the additional expenditure being made. Markets continue to walk a fine line, balancing the stimulus and long-term prospects against the economic damage being done. As a result, market volatility is likely to remain high in the weeks to come.
Lockdown measures appear to be working in many parts of the world. Public Health England and Cambridge University say there are fewer than 24 new cases a day in London with the number halving every 3.5 days. Elsewhere in the country, the numbers are getting better but not as good as the capital. Boris Johnson outlined a plan to very gradually open up the economy, however this will be a slow process and as it happens the infection rate will be carefully monitored. The COVID-19 epidemic may have longer-term medical implications. Cancer Research UK estimate 2700 cancer cases are going undiagnosed and reports show that visits to Accident and Emergency departments are down 60%. This appears to indicate that serious diseases are not being picked up. Early diagnosis is key to surviving cancer so this may be building more problems for years to come. Whilst public funding rightly goes towards research for treatments and vaccines, other areas of research are suffering. Medical charities dependent on both fundraising activities and their charity shops are losing funds, which means they are forced to cut back on life saving research. Charities are encouraging people to continue to support their efforts during this pandemic.
Governments and central banks
Rishi Sunak extended the scheme that supports furloughed staff despite the enormous cost estimated at as much as £80 billion. The Office for Budget Responsibility estimates that borrowing in the 2020/21 fiscal year will be £298 billion. This additional supply is likely to be offset by the Bank of England buying bonds with its quantitative easing measures. As a result, the rate at which the Government borrows will remain low. Both the Bank of England and the US Federal Reserve have resisted talk of negative rates this week but are ready to take other actions to support the economy through this crisis. We therefore expect bond markets to remain supported.
President Trump blames China for the coronavirus pandemic and is increasingly vociferous in suggesting ways to punish China. Some will see this as an attempt to distract from failings in his response to the virus. In December last year, markets welcomed the phase one US-China trade deal and a return to the tit for tat tariffs would not be good news for equity markets. US senators proposed a bill that allows the President to impose sanctions, including restricting access to US markets and travel bans, if China does not cooperate fully with investigations into the origins of the COVID-19 outbreak, amongst other things. China has responded with criticism of President Trump’s reaction to the pandemic.
Last week markets reacted positively to progress on reopening the economy, the slowing spread of the disease and advancement on vaccine testing. Conversely, government bond markets were supported by the poor economic data and comments by several central bankers that they will likely intervene further to stimulate the economy. Despite the Bank of England Governor ruling out a negative interest rate policy, the two-year gilt yield fell below zero for the first time.
Markets will continue to be volatile as sentiment swings between the negative economics and the positive support provided by governments and central banks. The daily flow of news is unrelenting and we encourage investors to take a longer-term view. We cannot predict how deep the recession will be or how long it will last, however we will eventually emerge from this with interest rates lower for even longer than before. This will support asset prices in general.
While some companies will suffer long-term damage from the pandemic, those with resilient cash flows and strong balance sheets will flourish.
DIY Wills “could cause family disputes” – increased risk during lockdown
When making a Will, many people choose to use a DIY kit or online template for a variety of reasons – especially in the Covid 19 era. Many think that it will be cheaper than going through a Will writer/Solicitor. Others consider it may be quicker to do it themselves, that they do not want a stranger knowing their business or simply feel they have little alternative during lockdown. These approaches however, could mean that millions of Britons are potentially leaving their loved ones to deal with disputes over the distribution of their assets after they die.
Although a DIY Will is just as valid as one drawn up by a professional, they are often littered with errors and mistakes. Further, the danger of templates is the potential of missing out important elements that should be addressed and included.
Common mistakes include the following:
- Will being incorrectly signed and witnessed
- No executors appointed
- Only one witness
- Witnessed by a beneficiary
- Copied from someone else’s Will with incorrect details
Any of the above could mean that the Will is invalid.
It is crucial Wills are correctly and accurately drawn up. Even the smallest of mistakes can have a significant consequence on the distribution of the assets, which can cause additional stress for the family involved.
Our sister company Will Management Services are here to give you and your family peace of mind and protect the ones you love. You are welcome to call Linda or Sarah on 01823 336265 or email email@example.com.
07 May 2020
Latest update from our investment partner, LGT Vestra:
Equity markets continue to balance the stimulus packages and long-term prospects against the collapse in economic activity. As the reporting season progresses, companies are suspending or cutting shareholder compensation and abandoning forward guidance, reflecting the uncertainty created by the pandemic. On the positive side, many countries are now looking at ways to ease back on the lockdown restrictions to get their economies up and running again.
In this respect, the UK and US may well be behind countries in the Far East and Continental Europe.
Earlier in the week, the US administration appeared to announce that the pandemic task force would be wound down by the end of the month. In the face of opposition, President Trump said it would continue its work, but with new members. This reflects his frustration that the US economy is not reopening as fast as he would like. He has encouraged protests against shutdown in states with Democrat Governors. He has stepped up attacks on China, blaming them for the pandemic, and has said he will review the phase one trade agreement. The US-China trade deal at the end of last year was welcomed by markets as a step forward from the tit for tat trade war that had developed. When the latest US job figures are published on Friday, we expect unemployment to jump to 15-20%, reflecting the depth of the damage done despite the various measures to support employment.
The UK Government hit its target of 100 000 tests in a day by the end of April. However, the tests carried out daily in May appear to fall short of this. They now place their hopes on ‘track and trace’ using an app on smartphones. A similar process helped South Korea contain the coronavirus spread and was in place some weeks ago. Concerns have been expressed that this could be an invasion of privacy and the UK has started testing its own system in the Isle of Wight. The affordability of paying for furloughed staff will mean that Chancellor, Rishi Sunak, will be hoping that we can get people back to work as soon as possible.
In Europe, countries are beginning to ease restrictions. Spain, which was hit hard early on and imposed strict controls, allowed children out of their homes for the first time in six weeks. German Chancellor, Angela Merkel, announced that shops would be reopening with additional hygiene measures and the football season could resume without fans. So far, these are small steps but welcome moves. Infection rates will be watched closely to see the impact of easing on the healthcare system. The German Constitutional Court has reviewed the legality of European Central Bank (ECB) bond purchases. The judgement this week was a ruling on a previous package rather than the latest pandemic support programme. It put into question the Bundesbank’s ability to contribute to future aid and may restrict the ability of the ECB to provide financial support to Italy in the future.
The Bank of England Monetary Policy Committee met this week and unusually announced the outcome of the meeting at 7am today, rather than the middle of the day. They had already cut rates to 0.1% and increased Quantitative Easing (QE) previously. The Committee voted 7-2 to keep rates and QE at the same level. The two dissenters wanted to increase QE by £100 million with immediate effect. Market expectations will now be for this to happen at the June meeting. Ahead of the meeting, the pound marginally sold off and was little changed after the announcement. The Bank of England scenarios stress the difficulty in making predictions. However, they do see inflation dropping below 1% on a lack of demand and lower oil prices before recovering towards their 2% target.
Markets continue to balance the economic collapse with the stimulus package. Daily movements in equity markets reflect moves in short-term sentiment swinging sharply in both directions but overall movement in the last week has been small. Following the support packages, and deferring the deadline tax payments from April to July, the US will need to fund $2.99 trillion this quarter. They will issue 20 year treasuries for the first time since 1986. This supply appeared to weigh on longer-dated US bonds with 30 year yields up 0.15% to 1.4%. 07.05.2020 Weekly COVID-19 update 2/2
As countries gradually ease restrictions, economic activity will pick up and markets will closely watch the reinfection rate to see if restrictions will need to be reinstated. A renewed trade war between the US and China would not be welcome at this time. When restrictions are lifted, interest rates will still be low and equities with solid balance sheets and businesses not permanently damaged will thrive. The dispersion of returns has been high within markets and sectors reflecting this. We therefore continue to look through the present malaise and suggest a selective approach to equity and bond investment.
30 April 2020
It can sound insensitive to talk of death in numbers however, inevitably, statistics are relied on to ascertain the spread of COVID-19. Daily statistics are just numbers and fail to reflect the personal tragedy that surrounds each death. As the infection data is dependent on the numbers tested, we look to the death rate as a more reliable indicator of the spread of the virus. This suggests that the social distancing measures are proving effective, with some countries beginning to gradually ease the restrictions.
In the UK, the lockdown restrictions have been renewed for another three weeks but pressure is building for some to be lifted. Investment markets continue to be a balancing act between the economic damage and the measures to support the economy. This week, slowing demand caused dramatic moves in the oil market.
The latest earnings season has seen a partial reflection of the shutdown of the economy. Many companies have cancelled dividends and share buy-back programmes, as well as cancelling forward guidance on earnings. Property funds have suspended trading, the reason for this is not because they do not have cash to pay redemptions, it is as a result of being unable to value their portfolio. Economic data has been understandably dire; the Eurozone Composite Purchasing Managers Index has fallen from 51.6 in February to just 13.5 two months later. Estimates of the damage to Gross Domestic Product vary enormously. We are in a recession with many economies shut down around the world; the depth of the recession is less for markets than what shape economies will be in when they get back to normal. Government and central bank action has been targeted with seeing businesses through the crisis so that economies can flourish long term.
The US senate and Congress have passed a further $484 billion aid package, and work on the next package is already underway. While political division delayed fiscal action initially, the take up has been rapid and the fund flows continue. In the UK, action was faster and the take up of the employment support has been good, however the loan schemes have been much less successful. Banks have been slow to gather credit information and have sought security against the loans. To address this, the Government has acted to ease these restrictions.
The European heads of government met and appeared to agree a package of economic support, but the details have yet to be finalised. The debate appears to be over whether to make payments as loans or as grants. It is also unclear at this stage how this will be funded. Meanwhile, many countries are increasing debt issuance and the European Central Bank may increase its bond buying. While the economic damage globally is huge, the measures to support the economies are equally so.
After a positive move, markets appeared to take stock of the recent weak economic and corporate news. The biggest headline came from the oil market, with West Texas Intermediate oil price going negative. The oil price is weighed down by excess supply over demand. The fall in oil price has caused a flood of interest in trackers on the oil price from retail investors. The quoted oil price that moved negative was a futures contract for delivery in May. As this drew towards the final day of trading on the 21st April, it was clear that storage for delivery was close to full. The rate for hiring a super tanker for storage is said to have gone up tenfold since February. With no storage availability, no one wanted to take delivery. Some Exchange Traded Funds that offered leveraged exposure to the oil price have been forced to close. The United States Oil Fund (USO), the biggest oil-tracking fund, has changed its methodology to hold some futures with longer maturities.
Equity markets continue to be a balancing act between declining economic activity and actions taken to support businesses long term. In the short term, statistics will continue to be poor and remain uncertain. The dispersion within sectors will remain high and markets volatile. On the positive side, the strict social distancing measures appear to be working and a gradual release of restriction seems likely. Albeit not as fast as President Trump would like. Central banks are buying corporate bonds and moves to cut share buy-backs and dividends are being made to support balance sheets. In the longer term, we are likely to see interest rates remain low for a prolonged period of time, which will support equity markets as earnings recover when we emerge from the COVID-19 restrictions.
29 April 2020
NEW GOVERNMENT TOOL
The Government has introduced a new ‘support finder’ tool to help businesses and self-employed people to determine what financial support is available. The questionnaire takes business owners a very short time to complete and directs them to the relevant government financial support they may be eligible for. To acess the tool, follow this link.
28 April 2020
THINGS TO DO DURING THE STAY HOME PERIOD
With the UK lockdown measures extended until early May, if you find yourself with some available downtime, it may be a worthwhile exercise to put your basic wealth planning "house in order" with the help of this simple checklist.
16th April 2020
THE COST OF MISSING OUT ON A MARKET RECOVERY
With so much volatility in the markets at the moment, it is understandable that investors are concerned about their portfolios and are considering selling their holdings. However, taking your money out when you see a downturn in markets means you do not benefit from any increase in prices if the market starts to recover. Click here to read the full report
14th April 2020
You will have, I hope, noted that on this page we have worked hard to provide a mix of fact and opinion, all of it balanced. Well here is a little straightforward good news:
- Last week, the S&P 500 surged 12.1% - the biggest one week gain since 1974.
- The Russell 2000 was up 18.1%.
- In the UK, the FTSE 250 enjoyed its best week in its 36-year history, while the FTSE 100 had its best week since the financial crisis.
As ever, please note this is looking as the past and no one knows what the future holds. Nonetheless, there’s always room for a little good news.
Regards, David Penny, Managing Director
9th April 2020
ALERT - INCREASE IN SCAM ACTIVITY - ALERT - PROTECT YOUR DETAILS FROM FRAUDSTERS
Due to the way we are all currently working, we are seeing a lot more reliance on email for communication. Be prepared: fraudsters are fully aware of this and are targetting clients, providers and intermediaries, including advisory firms.
One way they operate is to pose as clients by hacking into email addresses or spoofing accounts to appear to be the client themselves. They then attempt to instruct advisers to change existing bank account details and place instructions to sell holdings, to steal funds from the genuine client. The consequences can be devastating, and the losses may be significant.
Please read the following simple but effective steps we can all take, to protect ourselves from this type of fraud.
- Never act solely on an email instruction
- Use a separate, established form of communication, such as a trusted phone number, to confirm an instruction. Take extra special care if someone is asking for personal or bank details to be added or amended
- Look for inconsistencies and mistakes in email instructions and be cautious if they expressly state for you to not contact them by phone. This is a common method used by fraudsters
- Be aware that fraudsters may provide fake documentation in the form of bank statements using a genuine email address
- Always double check details personally and not by responding to the email
- If a communication displays the correct senders logo's and branding. Still act with extreme caution as fraudsters are becoming very adept at recreating such details to look genuine
It is important that clients are aware providers, under their Terms and Conditions, in the event of a fraudulent instruction of this type, will not normally be held liable for any resulting losses. If in any doubt whatsoever, no matter how small, DO NOT REPLY TO, OR ACT ON a suspicious email or phone call. Indeed, frausters are now frequently using social media, therefore the same cautious approach applies.
8th April 2020
Today’s update from our fund management partners:
East versus West: the impact of coronavirus
The old adage used to say that when the US sneezed the rest of the world caught a cold, however for the last few years there has been increasing evidence that there is a decoupling underway between the East and the West. The evidence of this decoupling is particularly clear when assessing how both parts of the world have dealt with the Coronavirus and how this has impacted the stock market performance of these respective regions. Thus far, from a stock market perspective, Asia has been successful in decoupling itself from the West as Asian assets are outperforming western assets, and with a lower volatility. Since the start of this year, the IA Asia Pacific ex Japan Index is down -15.56%, China's Shanghai stock market down just -11.57%, whereas the FTSE 100 is down 25.26%, MSCI World down -18.53% and the S&P down -17.24% (source for all five, FE Analytics 07.04.2020). If this difference in performance continues, then investors will take note.
Broadly speaking, while Asia* went into lockdown much quicker and implemented this lockdown in a more comprehensive manner via testing, contact tracing, obligatory mobile phone applications, mass temperature screening and severe punishments for flouting the rules - their fiscal response has been more measured and reserved than the West. On the other side of the world, the UK and the US were slow to put in place lockdown measures - and even when they did, it felt alarmingly impotent as people continued to party with impunity. Meanwhile, the US and UK have responded to the economic lockdown with huge and unprecedented fiscal measures, aimed at maintaining household incomes and stave off a wave of mass bankruptcies. It appears that Asia's forthrightness early on in the crisis, has allowed them to emerge from the lockdown quicker, and with the requirement for fewer fiscal measures.
Aside from the well versed benefits that emerging economies have over the West, such as better demographics and having greater growth potential, we believe that Asia has two other noteworthy advantages that could allow them to emerge from this slowdown in a strong positon.
Firstly, from a monetary policy (interest rate) perspective, Asia are a few years behind the West. Interest rates in the western world are already at all-time lows. This means that the impact of any further rate cuts to consumers and businesses in the Developed World is minimal (ie consumers get very little benefit if rates go from 0.25% to 0%, as mortgage rates cannot go lower). Meanwhile, Asia's starting point for interest rates was much higher coming into this downturn therefore, has considerably more monetary ammunition to stimulate the economy as the impact of these cuts are more powerful on the end consumers and businesses.
Secondly, the dramatic fall in the price of oil will be beneficial to Asia and in particular, China and India. Both these economies are large net importers of oil. In fact, when you look at the impact that it could have on stimulating the economy it is quite staggering. For India, it could amount to a figure close to 2% of their GDP. For China, one of the world's largest importers of oil, it will also act as a powerful stimulant to growth. When combined with other local fiscal and monetary action, we believe that the mix for economic recovery is potent. A final point to be made here is that we have seen Asian (and EM) currencies sell off sharply versus the Dollar during this crisis, further making the case for some Asian currency exposure very compelling.
While we believe there are still extremely compelling investment opportunities in Western economies, it is no secret that the very long term prospects for Western economies were already dwindling as a consequence of higher debt, aging populations and lower growth. The early indications of the impact of the Coronavirus are that it will saddle Western governments and companies with yet more debt to service. On the flip side, Asia, free from the weight of the excessive debt burden hanging from their neck, looks set to emerge from this crisis in better order, with its youthful population and companies trading at attractive valuations. Many of our investments, even our UK funds, will be beneficiaries of this growing middle class in Asia.
*Japan has been excluded from the references to Asia.
3rd April 2020
The Road Ahead - Bordier:
Now, at a time when the world is desperately grasping for answers to questions about how long this crisis will last, and at what human and economic cost, it is perhaps more important than ever that we, entrusted to look after clients’ wealth, remain focused on this important task.
As Yogi Berra, the great American baseball player, noted “it’s tough to make predictions, especially about the future”; as a firm, we cannot guess the short-term direction of stockmarkets. Anyone who believes they can will be proved wrong, sooner or later, because it simply isn’t possible – it is indeed no more than guesswork and should not be on the minds of genuine longer-term investors.
What we can do, however, is resist the temptation to make sudden and possibly knee-jerk moves. Our job, on your behalf, is to remain narrowly focused on making long term, well thought out and deeply researched investment decisions, ones that we believe will be proved to be the right ones in time.
The economic damage that is being wrought will result in seismic shifts in the manner in which the developed world functions. Leaving aside the terrible human cost, there will be widespread damage to a vast swathe of businesses, many of which will not survive. However, the ability of the human race to pick itself up, regroup, and start again, is not diminished – in fact, crises tend to bring out the best in us.
It may not be easy, and it may get worse before it gets better, but long-term investors should hold fast and stay strong. From a financial perspective, this is the prudent and true course to steer.
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.
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.