Please find below our “Investment Market Update” as at 24th March 2020
Throughout this crisis, we will continue to bring you two communications each week, which will focus on investment market sentiment, intertwined with social, economic and political developments. The update each Friday, will highlight what is happening across our portfolios.
Blue Sky Investment Market Update
Equites rise… for now!
Amazingly, the FTSE 100 is up by 4.24% today after the Dow & S&P 500 posted a -3% return last night. However, things turned around in Asia, with the Nikkei up over 7% and the Hang Seng 4.5%.
Travelling East to West
It is reported that 85% of China is back to being operational. Even in Hubei province, they are lifting the lockdown. By way of context, 1.5 billion people across the globe are in lockdown which equates to circa 20% of the global population.
This virus is obviously passing from East to West, but the time period is unknown. However, if people continue to be selfish and congregate in crowded areas, the isolation in the UK will be prolonged. As I said to our team yesterday, a totalitarian state works in times of crisis. Apparently, commuter trains were packed out this morning… what is wrong with people? Italy’s experience shows that measures to isolate affected areas and limit the movement of people must be taken early and strictly enforced.
It’s a very good job we don’t have the same mindset as good old Donald who has declared that “the US was not built to be shut down”.
Federal Reserve disappointment!
Back to the markets, yesterday, the Fed said it would buy unlimited amounts of Treasury Bonds and mortgage backed securities to keep borrowing costs low. It also set up programs to ensure credit flows to corporations, as well as state Governments. However, US markets were initially underwhelmed that there is no fiscal stimulus forthcoming, with the ‘package’ stuck in Congress. A $2trillion stimulus is anticipated. The mood was not helped by the perceived lack of co-ordination amongst the G20 countries.
Despite this, futures in the US have risen over 4%. European stocks have also risen strongly, led by energy companies (which have been pummelled) and miners. Asia rose strongly overnight with Korea rising 9% on measures by the Government, to stabilise financial markets.
More support required
Whilst this move is encouraging, we have seen the markets ‘jack-knife’ the following day on many occasions. Clearly, what we need to see is a slowdown in the number of cases but across most western economies this is unlikely to happen for a few weeks. In the financial crisis of 2008, it was the co-ordination amongst the G20 countries which was the catalyst for the market recovery so let’s hope this follows soon. Many economists don’t think they have done enough.
It was reported in the Financial Times today that the Global Head of Macro and Investment Strategy at Fidelity International has stated “if the US economy is going to come out of this crisis and the undoubted recession, more radical policy interventions will be needed in the next few weeks”.
Investment markets are a forward indicator
Negative figures out today, reporting on the Eurozone’s economic activity, were unthinkable a month ago and we can expect more shocking headlines. It’s worth noting that despite the publication of such negative data, equities are still buoyant today. Whilst we are expecting huge swings in market sentiment, it is worth remembering that, as in the financial crisis of 2008, it was the financial markets that recovered the quickest as they are always forward looking.
This wonderful weather is at odds with how we are all feeling at the moment, but at least it gives us a lift even if we can’t enjoy it like we would usually by roaming about in the fresh air and sunshine.
There are wonderful stories about how people are offering support to others, across communities, but there are also some tales of complete selfishness. Let’s try and focus our energies on the good things happening out there in our communities, and in nature too.
Thoughts are with you all, and especially those in the medical profession who are serving us so gallantly.
Gary and the Blue Sky Investment team.
The Blue Sky Investment Team
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.