Update on market developments
Today, our CEO, David Esfandi introduced an open call for clients with our Chief Investment Officer, Michel Perera. If you missed the call or didn’t manage to catch all of it, please contact your Investment Manager or Wealth Adviser for the full recording. Otherwise, you can find a summary of the main points below.
We understand that this is an unsettling time for our clients which is why it’s more important than ever for us to be by your side and keeping you informed. We want to ensure you have direct access to our experts, whether that’s by phone, email, video or via our website. We are watching indicators very carefully and constantly looking at all aspects of our clients’ investments, their discretionary portfolios, and the right time to make any adjustments.
Why are markets behaving the way they are?
Markets are likely forgetting that although there are c.200,000 cases of coronavirus around the world with c.8,000 deaths, there are also c.80,000 recoveries.
However, with lockdowns and quarantines causing so much panic, markets are unable to price in corporate earnings for the next couple of quarters. Many commentators are also giving apocalyptic outlooks and some market participants are dealing on that which is causing further upset. Markets have sold indiscriminately, selling tracker and ETF investments which has exacerbated the declines in individual stocks. So, even where there are still good investments, they have been part of the collateral damage.
In fact, with interest rates at zero following central bank measures - and governments committing to monetary and fiscal policy - long-term earnings today should be worth a lot more than is being priced in. All of these measures are good news for markets in the longer term and so there is a considerable degree of potential upside in markets.
What needs to happen for markets to reach a turning point?
For markets to come out of this downturn, there needs to be an inflection point of cases of the virus in Europe and the US but currently, they are still rising. Markets need some idea of how bad things can get in these places, and to see the number of new infections flattening. Timing, of course, is hard to predict. The world has seen the peak of the virus in China which is a positive, but we want to see the same in Italy and the rest of Europe and then of course, the US.
A recovery could happen in weeks or it could happen in months. When it does, stock markets will have discounted the worst. This will be the time for us to proactively help our discretionary and advisory clients invest back into the markets. For any clients uninvested or sat on cash – this may be one of the greatest opportunities to invest; it doesn’t happen very often.
Of course, one caveat is that somewhere along the way, there could be a large company that goes under and so, we are doing a massive amount of due diligence on our investee companies to do our best to avoid that fate.
Can markets keep falling eternally?
No. This is because governments are committing so much in terms of monetary and fiscal stimulus. There is likely to be a bazooka stimulus package in the US and we’ve already seen measures taken in the UK get bigger. The cavalry is coming.
Who will be affected the most?
There will be inevitable damage for certain businesses – for example, those in hospitality, travel and events – some may even go bust. Banks will also have to bear losses and energy companies will continue to suffer following the oil price war started a couple of weeks ago. So, the question is, how much of the ‘bazooka’ will be able to help ailing businesses and industries so they don’t close and lay people off?
However, even for banks, their capital positions today are so much better than they were 10 years ago. Since the financial crisis, they have been driven to build up their capital buffers and their balance sheets and assets have been de-risked. Banks are in a strong position, particularly in the US and the UK, that gives them leeway to weather this economic storm.
Are there any areas which might benefit?
Yes. The technology sector is likely to benefit from a change in our way of life after the virus, as social distancing changes our habits, potentially for good. Healthcare could also transform – particularly in the US where it’s unlikely to remain acceptable for individuals to have to pay such high prices for routine matters. The latest example being how much US citizens have to pay for coronavirus tests.
Infrastructure will be another important theme. In the US, both the Republicans and Democrats will want to spend money, although right now some areas are doing better than others – airports and toll roads, for example, are suffering in the short term while utilities and mobile towers are benefiting.
Environmental, social and governance (ESG) issues will remain very important to societies and communities around the world. Fund managers who manage ESG portfolios have tended to outperform over the last couple of years and ESG issues are unlikely to go away. So, companies seen to do the right thing will continue to be rewarded by consumers and markets. On this theme, China’s suspension of industrial factories to curb the spread of coronavirus has resulted in massive pollution level reductions; Chinese citizens will be reluctant to go back to those levels and will be looking for more environmentally friendly solutions and a better quality of life.
Conclusion and next steps
Markets today are still extremely volatile and it is unsurprising investors feel unnerved. As we’ve seen, even gold and bond markets have suffered collateral damage. However, markets are moving so much each day (the S&P 500 rose 9% on Friday, fell 12% Monday and rose 6% again yesterday), it could be dangerous to sell or buy investments on a short-term basis during this time. It’s not totally impossible that when markets do see a proper inflection point in virus cases, there could be a rally of as much as 20% in one day and investors need to wait for that time. The type of volatility we’ve seen on the downside could be mirrored on the upside, but from what level, neither we, nor anyone else can tell.
How can we help you?
As a business, we are fortunate to be in a strong position to weather this storm so please draw on a moment for calm and reassurance. We have seen these corrections before, and in our opinion, this is not a systemic financial crisis like we saw in 2008. Change does bring great opportunity and we have likely seen most of the downside in markets.
All lines of communication are open, so if we haven’t answered your questions, please call your Investment Manager or Wealth Adviser directly and they will be happy to speak with you.
To listen to the full recording of today's call, please speak with your Investment Manager/Wealth Adviser who can send this to you by email. Alternatively, you can dial 0800 408 7373 (see here for a full global list of numbers with alternative UK numbers) and enter 530433 to hear the recording from your landline/mobile.
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For further updates on markets during this time, please visit our coronavirus hub here.
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.