Latest update on market developments - 3 April
Over the course of March, we started to see a much clearer path for the coronavirus, a domino-effect of lockdowns around the world and as a result, the inevitability of one of the deepest recessions ever seen. It has given us the opportunity to reflect on the potential scenarios for markets and deeply analyse the potential path of a recovery.
Our analysis has drawn us to a more cautious outlook for markets, which is not to say there can’t be a full (and possibly extraordinary) recovery. But for a number of reasons, we think it could take longer than expected.
As a result, we took the bounce in markets last week as an opportunity to reduce equity risk in our clients’ discretionary portfolios. Not only does this help reflect our more cautious view on the depth and length of the recession ahead, but it also means we can take full advantage of the great investment opportunities when they do come.
For full details of our analysis and why we feel it may take longer for markets to recover, you can listen to a full recording of our open call yesterday. Instructions are at the bottom of this article.
Most market commentators are expecting that shutdowns and containment orders will be short, followed by a strong recovery. While this might be the eventual scenario that plays out, this is the most optimistic view, and there are others where things could get worse before they get better:
(1) On-and-off shutdowns as the virus recurs in waves. This is the warning from academics at Imperial College and has already happened in Japan.
(2) Unlike normal seasonal flu, there will be no seasonal slowdown of the virus over the summer.
(3) There’s an extended outbreak period which does not subside until a vaccine is discovered and put into production. Scientific advice says that vaccines will take at least 12 to 18 months.
Things will get better at some point and we are encouraged by the steps central banks and governments are taking:
- Liquidity is plentiful as central banks have flooded the economy with money to help markets of all kinds (government and corporate bonds, currencies, equities, loans).
- Fiscal stimulus is coming at a rate never seen before in peace time. The US has started with a US$2.3trn package and is already discussing another one. More such packages are likely to come from the US, UK, Germany, and other European countries which means there is no risk of a 1930s Depression; the cavalry is already here.
When will the crisis end?
If we can see the end of the lockdown in western countries, and in particular the US, then we can estimate the extent of the damage to the economy and to corporate earnings, which is what matters for the markets. There is therefore a way out.
The investment opportunities on the other side of this virus are likely to be exceptional, maybe even the best in a generation and - as is often the case during a bear market - we will at some point suspend our concerns and look for these opportunities.
Some investments will be extraordinarily cheap, others will simply benefit from a change in our society. Following 9/11, there were a lot of investments in security. Logically, businesses addressing the core of the crisis are the areas that people will invest in afterwards, such as working from home technology, medical advancements or even personal protective equipment.
While we can already start to see these opportunities, we just need to wait for the right time to take them up and rest assured, we are focused on the potential rebound. Fortunately, we are poised and nimbly prepared to reinvest back into the market when volatility comes down and risks are more evenly balanced. Above all, we should remember that the economy will be resilient and will in time overcome the virus.
To listen to the full recording of our open call…
You can dial 0800 408 7373 (see here for a full global list of numbers with alternative UK numbers) and enter 208269 to hear the recording from your landline/mobile.
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Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.
The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.
The information contained herein is based on materials and sources that we believe to be reliable, however, Canaccord Genuity Wealth Management makes no representation or warranty, either expressed or implied, in relation to the accuracy, completeness or reliability of the information contained herein. All opinions and estimates included in this document are subject to change without notice and Canaccord Genuity Wealth Management is under no obligation to update the information contained herein.
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IMPORTANT: Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.