Market Update – 12th March 2020.

As we wrote in yesterday’s Market Update (please see here), while the coordination between the UK government and the BoE delivered a positive and powerful response to the coronavirus outbreak, we would also need a co-ordinated and coherent “do whatever it takes” approach from the US and the Eurozone to support the global economy and global equity markets.

We had hoped that Donald Trump would unveil a massive economic aid package which included suspending payroll tax until the US election in November 2020.  Unfortunately, he didn’t announce any concrete stimulus measures – instead he simply announced that he was suspending all travel from the 26 countries in the European Schengen border-free agreement (so the UK is not included in this restriction).

Unsurprisingly, global equity markets were not impressed and have fallen heavily.  As we write, in the UK, the FTSE-100 is currently down 5.8%, while in the US, the S&P 500 is expected to fall again this afternoon despite falling 4.9% yesterday.

The ECB is meeting today and we expect the central bank will provide more monetary stimulus, but with limited room to manoeuvre it may not be enough to improve sentiment – history has shown us that global equity markets can deal with any eventuality, but hates periods of uncertainty – and the coronavirus outbreak is a big uncertainty – hence the need for the US (the world’s largest economy) to step up and announce a substantial fiscal stimulus to cushion the potential turmoil.

Consequently, we would like to repeat our previous statements that while we fully understand and appreciate that the current equity market weakness is unpleasant and unnerving, it is very important to maintain a long-term perspective and resist the urge for any knee-jerk reactions.  There will always be periods of market uncertainty and volatility and this current period is no different – and that my wealth takes a long-term approach to investing, because evidence shows that this leads to better outcomes as time in the market is more important than trying to time the market.  However, whilst we remain positive on equities over the long-term, particularly those in Asia and Emerging Markets, with infections continuing to rise, we expect equity market volatility will remain elevated in the short-term – and as such we are maintaining our short-term cautious stance with a slightly higher than normal level of cash (including liquidity funds).

Investment Management Team