I would like to provide you with our current thoughts on the COVID-19 situation and share a video with you from one of the investment managers we endorse, who is very well respected as an industry specialist; Lothar Mental. In the clip Lothar provides a general overview and his insight into the current market movements and outlook.
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, I wanted to send you our analysis of the current investment landscape and 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 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.
Whilst this current situation is undoubtedly worrying over the short term, we continue to remain committed to investing for the long-term. We would urge caution and restraint in these volatile conditions and do not recommend any change to your investment strategy, in light of recent events. The portfolio we have recommended for you was selected to match your assessed risk profile and for your investment time horizon and as such, we would recommend that you remain invested in accordance with this, rather than to sell out, realising losses.
If you are drawing an income from your investments, I would ask you to assess whether you could temporarily halt this, or at least reduce the amount you take, as withdrawals during a period of falling markets will compound portfolio losses. This happens because as the value of your units in a fund decrease, a greater number of units need to be sold to produce the same level of income. This in turn reduces the original income producing base making it more difficult for the portfolio to recover in value when the markets do and therefore to also provide the same level of income.
Please do not hesitate to call us on 01233 646666 if you wish to discuss the current situation in more detail, or your ability to lower your income payments.
Finally, please clink on the link below to view Lothar’s assessment of the situation.
From euphoric recovery to depressed tumble
Over the course of the weekend, stock markets have turned from euphoric recovery (US closed up +10% Friday night) to depressed tumble once more.
In today’s investment update we discuss what has changed and what we expect to change over the course of this week.
Central banks around the world have proven since last week that they mean it when they state that they will do whatever it takes to avoid outsized fallout from the COVID-19 activity restrictions.
Politicians have also made first moves towards mobilising fiscal policy to bridge the ‘Covid-chasm’ for small businesses and cash strapped households – they now have to follow up and get considerable fiscal accommodation under way.
Stock markets are increasingly pricing in a worst-case outcome, which by no means has to be a given, which means that stock markets are likely to continue to yo-yo up and down until things become clearer.
Please click on the below link to watch: