After yesterday’s (Thursday 12 March 2020) global equity market sell-off, share prices have, thankfully, rallied this morning.
Global equities yesterday saw their worst day since October 1987 as the actions of Donald Trump and the European Central Bank were regarded as insignificant to offset the economic impact of the coronavirus outbreak. For example, the FTSE-100 fell 10.87% – which was more than any day during the 2008 global financial crisis and the second worst day in the index’s history.
The FTSE-100 is now down over 31% since the last Portfolio Valuation Statement dated 5 January 2020. Unfortunately, this fall hasn’t spared our portfolios, as some of our Balanced & Adventurous risked clients have seen their portfolios fall by just over 20% over the same period.
Equity markets hate uncertainty and thanks to the scars from the global financial crisis in 2008/9, equity markets have tended to react disproportionately to any uncertainty or disappointment (remember the initial reaction to the Brexit vote in June 2016; the election of Donald Trump in November 2016; the unsuccessful Italian constitutional referendum in December 2016; and North Korea’s missile tests over Japan in August 2017). However, all these uncertainties turned out to matter very little and equity markets quickly recovered.
We are not trying to down-play the impact of the coronavirus outbreak, but its impact is likely to be transitory – and, so far, US economic indicators have remained solid, while the Fed (the US central bank), is highly likely to provide more monetary stimulus in order to limit the impact on economic growth.
Consequently, there is a strong possibility that the major global equity markets will stage a V-shaped rebound, just as the Chinese equity market did as soon as coronavirus cases peaked.
However, in the meantime the path for financial markets is unlikely to be smooth as we fully expect market volatility will remain elevated in the short-term.