COVID-19 (Coronavirus): The latest for investments
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Have we turned a corner?
In our last update we talked about time and patience. Well six months has now passed, only a short period of time from an investment perspective. We wanted to write again following a significant number of events. Financial markets have been buoyed by positive developments on a coronavirus vaccine and a win for Joe Biden in the US Presidential election has been welcomed by investors. We hope this marks a turning point in what has been an incredibly difficult year.
We have had very promising news from US pharmaceutical giant Pfizer and its German biotech partner BioNTech. The announcement that their vaccine was more than 90% effective in preventing Covid-19 saw a relief rally in markets as investors hoped that the end of the crisis was in sight. Governments and healthcare experts welcomed the news but were quick to manage expectations. Should the vaccine gain the necessary regulatory approval there will still be logistical challenges to overcome, both in its mass-production and distribution to the population. As an example, this vaccine requires storage at very low temperatures or it becomes unstable and less effective. The Pfizer/BioNTech vaccine is viewed as potentially game-changing and one of the most meaningful developments since the pandemic struck.
It is likely to be followed by a number of vaccines and therapeutics that are in advanced stages of development, helping to prevent or treat the virus and we have seen this with further positive news coming from Moderna.
However, in the short-term, infection numbers remain elevated and restrictions on normal activity are likely to be in place throughout the winter.
Turning to the US Presidential election, despite President Trump unwilling to concede the race and pushing forward with court cases in a number of States, he does not appear to have grounds on which to challenge the result. The odds are still very much in favour of a Biden presidency for the next four years.
Markets took a positive stance on the avoidance of a “Blue Wave” (a democratic President whose party holds a majority in both houses of government) that many pollsters had predicted, but did not materialise. A split Congress and a President-elect who is known as a pragmatist, having forged relationships on both sides of the aisle in his decades in Washington and also on the international stage could make for a very market-friendly outcome over the medium term.
Divided government makes the more extreme policy changes less likely to become a reality. Internationally, a Biden administration would be more open to renewing a transatlantic free trade agreement with the EU. On the environment, it is likely Biden would re-enter the US into the Paris climate accord. On China, it is expected Biden to take a more united front with Western allies to halt China’s growing influence, although this is yet to be seen.
The risks of a blind corner…
As ever there are risks to this more positive outlook, extended lock-downs in countries worst affected by a second wave of COVID and, on the political front, Brexit negotiations are still ongoing. In the US the outgoing Trump administration seems likely to make this transition period one the most contentious ever seen, which in the midst of a pandemic has the potential for serious consequences. There are also two Senate seats in the state of Georgia still to be confirmed. Both will go to a January run-off, with no single candidate receiving the minimum 50% in the first round. The likelihood is that at least one of the two seats will remain Republican, giving them a slim majority in the Senate. However, if both seats did go the Democrats in January it would mean an even 50-50 split. In this scenario, the deciding vote on legislative matters would revert to the office of the Vice President, which we assume will be occupied by Democrat, Kamala Harris.
It is expected that significant fiscal and monetary policy support will continue, with a focus on healthcare and helping businesses and workers who have been most affected. Foreign and trade policy uncertainty will ease significantly under a Biden administration. The unpredictability of the Trump presidency is likely to be replaced with more measured tactics as the US looks to co-operate once again with the international institutions that have presided over decades of strong corporate profitability. Such a change may benefit non-US equity markets more than US markets but as we utilise a wide range of global, diversified multi-asset portfolios we can contend with that.
As ever, should you have any questions regarding your investments then please do not hesitate to get in touch.
‘The two most powerful warriors are patience and time.’
Right now, we all find ourselves in uncharted waters as the world unites in a fight against an invisible enemy, the coronavirus. The Covid-19 pandemic has had – and is still having – a terrible human cost, and it has brought economies to the brink of recession and caused share prices to fall significantly.
Unsurprisingly, people are feeling anxious. Many are facing fears for their lives and livelihoods, and for those of their families and friends. But we are told that by following official advice and staying at home, we will get through this. In time, we will come out the other side.
Staying focused, staying invested
The message is no different for your investments. Often, it’s in times of severe market stress, like just now, that we succumb to impulsive behaviour and make kneejerk reactions. This is understandable, particularly when our instincts may be telling us to cut our losses.
However, fleeing your investments now could mean losing out on any potential gains when stock markets eventually start to recover. Panic selling could crystallise losses rather than avoiding further falls in the value of your investment. And remember, while the value of investments can fall and rise, losses or gains are only actually realised when you make a withdrawal.
Markets are moving quickly, and the recent decline into a bear market – a drop of 20% from a recent peak – was swift. But history has shown that bear markets are part and parcel of investing. While declines have varied in intensity and frequency during other challenging times, the market has always recovered.
Keeping a long-term focus
In this turbulent environment, we believe the best approach is ‘time in the market’, not ‘timing the market’. By that we mean staying invested, instead of trying to call the bottom or timing when to get in or get out of your investments.
At HSP Financial Planning we are working with the knowledge of many providers and fund managers to navigate the current volatility with a composed approach. We are looking beyond this crisis towards investors’ longer-term goals, while considering new opportunities that the recent market volatility has created.
As long-term investors, we take comfort from the fact that good quality companies, like the ones in which we invest, should have a better chance of managing periods of difficulty. We believe that once we start to see some semblance of normality returning to daily life, share prices should begin to reflect a more positive outlook.
Keep calm and stay invested
There is no doubt this is a period of unprecedented uncertainty and worry about every aspect of our lives. One way of alleviating some investment concerns is by focusing on the reasons you invested in the first place and your long-term goals. Patience and discipline – remaining calm and staying the course until the recovery – are key ingredients to investment success in a falling market.
For investments, we believe time will likely once again prove that it is a healer and patience will allow us to move forwards in a composed manner. The advantages of being a long-term investor can be greatest when staying firm seems like the hardest thing to do.
The outbreak of the coronavirus COVID-19
The outbreak of the coronavirus COVID-19 has quickly become the most acute challenge facing the world at present.
The spread of the virus outside of China, the global containment measures being taken, behavioural responses by individuals and companies, supply chain disruptions and the shock to financial markets are combining to create a much larger and more prolonged global shock.
The recent market falls have been some of the worst in history. However, we witnessed significant market volatility in both 2002/03 and 2008/09 and markets have a track record of being able to recover in the long term.
No one likes uncertainty and this rapidly changing situation is one of the most uncertain situations we have faced, with fear driving the market.
What is important to remember during this unpredictable period is that you are long-term investor, good quality companies will survive and share prices in time will reflect a more positive outlook – even if this is towards the back end of 2020 / early 2021.
Markets are moving very quickly. The decline into a bear market – commonly defined as a drop of 20% from a recent peak – was swift. The situation changes on a daily basis, from crashes to rebounds.
The equity sell off continues to be significant. However, some sectors are faring well in this environment, including defensive sectors such as consumer staples, healthcare and utilities.
Against this backdrop, the year to date performance of the UK FTSE All Share was -31.4%; the FTSE World Europe ex UK index was -24.5% and the US S&P 500 -19.6%. (Sterling, as of close of business on the 16 March 2020).
The likely impact on global economic growth
With the threat of a global recession looming large, governments and central banks are working to counter the economic effects of the virus.
Capital markets are also doing their best to reprice the risk of a global recession. Unfortunately, neither monetary nor fiscal policy will be able to fully offset the near-term supply disruptions from containment measures and behavioural responses to the crisis.
Therefore, financial stress is unlikely to subside until there is clear evidence that new cases of the virus are slowing, and the economic aftershocks are better understood.
Market experts expect global growth to fall well below its current trend in the first three quarters of the year. A number of countries are likely to enter technical recessions (i.e. two consecutive quarters of negative growth).
Market experts expect full-year global growth to be just 1.7% in 2020, making it the third-weakest year for the global economy since 1980. Since then, only 1982 and 2009 have been worse.
But if the spread of the virus slows in the second quarter of the year, it is expected that a strong rebound in growth from the fourth quarter onwards. Current projections are for a growth rate of 3.9% in 2021.
This will be achieved with the help of the significant support from governments and central banks that has already been announced or is widely expected.
Whilst this current situation is undoubtedly worrying over the short term, we continue to remain committed to investing for the long-term. We would urge caution and restraint in these volatile conditions and to not make any knee jerk decisions.
HSP whilst working in a non-client facing office remain committed to the service we offer our clients and will be available to talk with you about any concerns or questions you may have on the telephone or via email.
Also see the Government page for general information and advice at www.gov.uk/coronavirus