Investment Strategy 2nd Quarter 2020
Financial markets have been devastated by the Covid-19 pandemic with falls of up to a third in the major stock market indices acknowledging that we are already in a very deep economic recession.
- The policy response from Central Banks and Governments has been immense and on a scale never seen before; attempting to ensure this is a V-shaped recovery into the end of the year rather than a long-term depression.
- Markets continue to trade wildly with no floor yet in sight, trying to find a balance between the fear of the pandemic spreading and the hope that it will eventually subside, with the policy response kicking in quickly and effectively.
- There has been a rush to ‘safe haven’ assets such as Gold and Government Bonds, though corporate bonds have produced negative returns as credit spreads, a measure of risk, have widened significantly as investors seek liquidity and quality.
- Safe haven currencies have been strong, notably the Japanese yen and the US dollar but sterling has been weak.
- The UK Commercial Property sector is in disarray with all the daily dealt ‘bricks and mortar’ funds now closed to redemptions and massive discounts to NAV for the REITs.
- The oil price has fallen a staggering 65% due to the collapse in global demand at the same time as a fall out between OPEC and Russia has led to a flood of supply.
- In this market environment our first concern is to avoid making short-term ‘own goal’ errors on portfolios. We need to make considered changes to make sure we get it right for the new and very different long term.
This is the 54th Investment Strategy I’ve written and by far the most sombre. I thought the 2008 Great Financial Crisis was to have been the ‘once in a generation’ event that would threaten our long term prosperity but this is far worse because of the threat to our health and that of our families. Our lives have changed fundamentally and may do so for many years in ways we cannot yet foresee. As we sit in our homes, cherishing our daily outing, we are though inspired by the work of the NHS, by workers in key industries and by the strength of the community spirit in our neighbourhoods which is bringing so much comfort as we face the worst weeks ahead. The human spirit a wonderful thing, a small but very bright and shining ray of light in the darkest of clouds.
The format of this newsletter is different to previous quarters. I’m not going to write individual regional reviews because it is a ‘one story’ market with just the one driver of prices across all global stock markets and economies. Instead, I’ll discuss the market outlook in both the short and longer term and our strategy for managing your wealth in these difficult times.