Please find below our “Weekly Market Update” as at 31st January 2020
Blue Sky Comment
Deadline day is known for two events but it’s the unknown that is worrying markets
At 11pm tonight we have two long awaited events, the UK leaving the EU and the transfer deadline for Premier League and EFL teams. I know which I will be more interested in!
There is likely to be very little movement on investment markets around us leaving the EU tonight, for this has been known for sometime now. The key is what terms will be negotiated throughout the rest of the year. This will no doubt keep us on our toes as it becomes clear which sectors are likely to become winners and losers.
What is preoccupying the markets at the moment is the spread of the Coronavirus. We are in an uncertain phase of not knowing the ramifications and implications of this virus. Only this afternoon there has been the first confirmed reports of two cases in the U.K.
Besides the shock and awe of what is being reported, investors are concerned about the possible impact on global growth which is already somewhat weak. Earlier in the week, we saw the FTSE 100 fall by its biggest one day margin in nearly 4 months, as the death toll multiplied 3 fold from last week. The FTSE 100 has fallen by circa 6% since last week.
Naturally, comparisons are being made with the SARS virus way back in 2003 and if we follow what happened then, there will come a point when the virus in contained and markets return to a more stable pattern. Obviously, we don’t quite know what we are dealing with. Apparently 2% of everyone who contracts the disease dies but this does mean the recovery rate is 98%. Unlike the SARS outbreak, the authorities and governments appear better prepared than last time but closing borders, having road blocks and expatriating people, certainly has a psychological impact.
Looking at all this in a functional and unemotional way, it is difficult to predict when this virus will be arrested and the extent this has on the global economic climate. Equities will remain under pressure in the meantime, however, at some point the markets will rebound. It’s just a question of when.
Wishing you all a healthy weekend.
The Blue Sky Investment Team
