COVID-19 (Coronavirus): The latest for investments
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‘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