March 19, 2020


On Thursday, 19 March, our Investment Solutions specialists Rupert Watson, Head of Asset Allocation, and Niall O’Sullivan, CIO, hosted a webinar on the latest investment implications due to coronavirus.

 

We have summarised the key elements from the call and the investment activities that we believe can be taken to help address some of these challenges.

What is happening?

Over the last couple of weeks, Europe has become the epicentre of the COVID19 Coronavirus outbreak as the number of cases reported across the continent continues to rise.

 

National governments have put in place increasingly strict measures to try and contain the spread of the virus, but it may be some time before this goal is achieved.

 

Along with the developing human tragedy, we have witnessed the start of a spectacular economic downturn that has resulted from efforts to contain COVID19.

 

The S&P 500 is down more than 25% since the start of the year, while the Vix Index, which tracks global stock market volatility spiked to its highest ever level earlier this week.

 

On the flipside, many investors are flocking to apparent safe haven assets forcing government bond yields fall, too, while others are selling even good quality assets to hold risk-free cash.

 

Around the world, self-isolation and lockdown policies have caused entire industries to practically shutdown overnight. Global stock markets have crashed, as investors fear the ability of companies to survive the ordeal. We already see disruption to supply chain that is likely heap long-term damage on businesses’ potential to operate.

Next webinar update

Thursday, 26 March, 3:30 pm GMT

Rupert Watson, Head of Asset Allocation, will be joined by Aisling Doherty, Senior Portfolio Manager, Fixed Income, Investment Solutions, and Andrew MacDougall, Head of Portfolio Management, to discuss the investment implications of the ongoing coronavirus.

It is our view that the global recession we are facing will be more severe than the great financial crisis, and, crucially, we will only start to emerge from it once the pandemic is contained. We have limited visibility on when this might be therefore we are confident that the downturn is going to be sustained.

 

The good news

The good news is that policy makers have jumped into action around the world, slashing interest rates and restarting record quantitative easing programmes to inject liquidity into the financial markets. Many have also pledged additional spending and loan guarantees, with the UK promising to do “whatever it takes” to support the real economy. The European Central Bank also issued its largest ever support package to protect the Eurozone area.

 

This unprecedented action is intended to provide a bridge for companies – and their staff – to weather the worst of the storm, until the global population is economically active again.

 

Unlike previous central bank action, which was meant to make people spend and help turn economies around, what we are seeing today is an attempt to freeze these economies until their populations are able to assume their usual role.

 

There is encouraging news that the actions governments are taking to contain the virus is working, with China reporting a drop in its number of new cases.  However, we cannot ignore the 40% drop in economic activity that the country had to withstand in the first quarter of the year to achieve it.

 

It is clear that outside China and other parts of Asia, things are set to get worse before they improve.

 

What can investors do?

For investors, these issues provide an additional worry, as portfolios react to these tremendous market shocks – but it is important not to panic in these situations.

 

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