Friday 20 March
The world has received a ravaging from coronavirus this week, seeing countries like Australia and New Zealand closing borders to all non-essential travel, and Italy falling prey to the highest death tolls yet recorded by the virus. In the UK, school closures from today have been announced and UK businesses in the airline, train services, retail and hospitality sectors have felt the severe economic backlash from government advice to the general public in mitigating the COVID-19’s spread. In the markets, we saw at the start of the week many global stock indices fall into bear markets, due to concerns of an impending global recession caused by the rapid moving pandemic.
It is not all doom and gloom: as we draw to the end of this week, we see both US and European stocks stabilise following extensive financial support from central banks and governments; their response has had global impact also raising government bond yields, with the price of oil jumping by a record amount in a single day of trading.
The funding measures from the central banks and governments have calmed the markets for now. This week saw global stocks closing higher week on week, with the US S&P 500 up by 6% following Monday’s 12% losses, and the UK’s FTSE 100 closing session at 3% higher. Promising too, in European markets, was the Stoxx 600 gaining 2% after having lost just over a third of its value over the last month.
Closer to home, UK Chancellor Rishi Sunak has promised a £350 billion emergency rescue package for UK businesses, entailing loan guarantees worth £330 billion and a further £20 billion in financial handouts to help with the economic troubles faced by businesses in light of the rapid spread of coronavirus. The Treasury has also announced further plans to delay the introduction of IR35 rules affecting contractors and the self-employed by a year.
This week has been a record for interest rates, with the US Federal Reserve cutting their interest rates to zero, followed swiftly by another reduction in UK interest rates from 0.25% to 0.1%.
With many clients asking what the response should be with their own investments in such uncertain times, the old adage ‘buy on fear and sell on greed’ rings in my ears. Nobody can see into the future; however, markets are forward looking, so the current coronavirus forecasts are priced into markets. It will take time, but we will get through this crisis. Whilst further volatility is to be expected, I sense we are approaching ‘maximum fear’ as many market participants capitulate. As Mark Twain said, history does not repeat itself, but it rhymes. For a contrarian investor, just as in the wake of the banking crisis more than a decade ago, the coming weeks and months will present some attractive investment opportunities to buy on dips at heavily discounted levels into quality stocks. For investors holding cash, phasing money into the markets at low levels will help deliver good returns in future.
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