COVID-19 and the Markets – Investments Team Update

The first quarter of 2020 was a very difficult period for global stock markets, with some of the biggest losses seen for three decades. However, following the extreme swings throughout March, as the month drew to a close there was a modest upswing in equities, largely thanks to commitments from central banks and governments to prop up their economies.

We know that stock market volatility can quickly re-ignite, and there could be further falls to come, but it’s pleasing to see that stock markets have stabilised for now. China, as the first country to be hit by the new coronavirus, has lifted many of the restrictions it put in place to tackle the outbreak, and the country’s all-important manufacturing sector appeared to return to growth in March. The prospect of China’s turnaround has boosted market optimism and we hope that other countries will follow suit and be able to get back on track in the coming months.

Due to the scale of travel restrictions around the world, it is unsurprising that travel and leisure equities have taken a significant hit. Oil prices were weak in the first quarter, hit by the worldwide drop in demand for fuel and travel as well as excess supply, but there are signs that stability should slowly return.

As April progresses, each day brings new developments. Perhaps most notable is the rapid escalation of the coronavirus crisis in the US, and the country’s upward trend of infections and mortality rate appears to be following closely behind Italy’s footsteps. With world markets generally following the US, this is a region we will be paying close attention to over the coming weeks, and the latest data shows a record 6.6m American citizens made new unemployment claims. This is worse than economists had predicted, indicating that there could be tough times ahead. It also acts as a warning light for a potential short, sharp recession in the US being on the horizon.

As professional investors, we will be watching how the markets react to all developments.

What the markets are looking for:

  • Signs that both the US and Europe can get the virus under control, leading to a relaxation of travel, social distancing and other ‘lockdown’ measures. This would help nations return to normality and help to reduce the long-term economic damage.
  • A vaccine or news of scientific progress being made with the development of a vaccine.
  • The distribution of more COVID-19 tests on a larger scale, both in the UK and in other countries.

What could lead to more market volatility:

  • A second wave of infections in China and the surrounding regions, following restrictions being lifted.
  • A greater range of ‘lockdown’ measures being put into action across the world or restrictions remaining in place for a prolonged duration.
  • Firms going permanently out of business.

As always, we will continue to closely monitor all developments relating to COVID-19. We are experienced in finding investment opportunities that arise during periods of short-term volatility and we carefully manage our funds for the long-term benefit of those who trust us to invest on their behalf.