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.
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.
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.
Many stocks are now priced at less than the value of the underlying assets of the business, which shows emotion rather than common-sense is currently prevailing. This clearly cannot last long-term.
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 co-ordinated 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.
History repeating itself?
We are all familiar with the phrase – the value of investments may fall as well as rise. And in this context, history continues to repeat itself, largely talked about as Bull and Bear markets. The graph below illustrates this cycle.
What should I do now?
Please remember first of all that all investments that we make are actively managed by Fund Managers on your behalf. They are working hard for you to ensure that the impact of the stock-markets is limited as far as possible on your portfolios.
Stock markets fall and rise, and investments we make for you are for the medium to long term – a loss is only suffered if you surrender your investment. Indeed, many investment managers are looking at this as an opportunity to invest rather than to disinvest as there is considerable value to be had in the market at this time.
Your adviser is available to discuss any matters that are concerning you and indeed to continue with business as usual. Please do not hesitate to contact them.
We will of course continue to keep you informed of developments.
Messages from our some of our key Fund Managers to the current market conditions:
“Patience is absolutely key in this sort of market and while we cannot call the bottom, indeed markets could go weaker from here, the current sell-off may be seen as one of those great equity investment opportunities in a market cycle. We are not complacent about the short-term economic impact of the pandemic, but we believe the effects will be finite – assuming a peak in new cases over the next month or so, recent and future stimulatory policy moves could bring about a strong recovery in H2 2020/2021.
Investment markets have come quite a long way over the years, and we have seen progression even after each significant market wobble, be it the 1992 recession, Exchange Rate Mechanism exit that same year, 1998 Asian crisis, Tech bubble in 2000, 9/11, Enron and GFC in 2008. One thing we have learnt is that when it feels extremely difficult to put money into the market that is probably when you get your best returns in future years. Based on these views we do fundamentally believe a diverse range of company earnings will progress and recover from here.”
“Whilst this current situation is undoubtedly worrying over the short term, we continue to remain committed to investing for the long-term prospects of the model 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.”
“In all of this we will not lose sight at Tatton of the fact that such extraordinary times also lead to some extraordinary opportunities in investments, as too much focus on the very short term leads to buying opportunities for those with a longer-term perspective. Historical precedent tells us that this virus crisis will pass and lead to a strong recovery, because the recessionary conditions are related to a passing condition, rather than a sustained deterioration in the general direction of travel the global economy was on before the virus crisis struck.”
Bull and Bear Markets chart notes
Calculations are based on FTSE All Share (GBP Total Return). A bear market is defined as a price decrease of more than 20%. A bull market is defined as a price increase of more than 20%. The plotted areas depict the losses/gains ranging from the minimum following a 20% loss to the respective maximum following a 20% appreciation in the underlying index. Time period: 31 January 1900 to 31 December 2018. Calculations based on monthly data. Logarithmic scale on y axis.
Source: Global Financial Data.
Past performance is not a reliable indicator of future results. The value of investments, and the income from them may fall or rise and investors may get back less than they invested.
Nothing in this update should be regarded as constituting investment advice and you are advised to consult your CWB Financial Planner before contemplating any investment.