Market Update – 31st March 2020.

UK equities turned around after we updated you yesterday to end the day up nearly 1% at 5,563.

Wall Street also ended the day positively, despite Donald Trump extending social distancing guidelines to the end of April, with the S&P 500 closing up 3.35% and the Dow Jones up 3.19%.

These gains have resumed again today after China’s PMI (Purchasing Managers’ Index) data came in much stronger than expected.  As we write the FTSE-100 is up 100 points or 1.8%.

China’s manufacturing PMI for March surged back into expansion territory with a reading of 52 from its historical low of 35.7 (50 is the line separating expansion and contraction – so a reading above 50 signals the economy is expanding), with production and new orders registering notable improvements, while the non-manufacturing PMI rose to 52.3 from 29.6.

This V-shaped recovery is positive as it highlights that although the economic impact of the coronavirus outbreak is negative, it is also short-lived.

Although global equity market volatility is likely to remain elevated in the short-term, given company earnings are likely to be negative until the spread of the coronavirus is under control and the lockdowns have been lifted, for long-term investors such as ourselves, this Chinese data highlights the opportunities – especially given the fact that once this horrible outbreak is contained, companies will be operating in a world full of cheap input costs (thanks to the lower oil price that we talked about yesterday – please see here), coupled with a looser labour market (and therefore subdued wage growth) and an accommodating monetary policy.

Additionally, as the lockdowns appear to be reducing coronavirus spread and related deaths, we may soon be at the economic trough and given the aggressive stimulus measures that governments and central banks have provided, we believe that we may soon experience something similar to that of the global financial crisis in 2008/9, when global equity markets rose even though the global economy was still contracting.

Investment Management Team