As we always preface any market updates at this time, the Coronavirus is primarily a human tragedy and anybody reading this update has access to the data, just as we do. The numbers of new cases in some countries are in the ‘take-off’ phase where the statistics can become overwhelming. We would like to offer an optimistic observation of some of the data, however. For the fourth day in a row the European epicentre of the disease, Italy, has recorded cases lower than their (current) peak level of 21st March. Amongst the major nations reporting cases the same appears true for Switzerland, Austria, Germany and Australia. Also, for the 4th day in a row, no new confirmed or suspected cases have been reported in the original Chinese hotspots of Wuhan and Hubei province.
Watching the wild gyrations of the stock markets can be a very uncomfortable experience. As we have said before, markets hate uncertainty and we have reached a new high in uncertainty as countries restrict, lockdown and quarantine their populations. Humans naturally feel the need to take action to regain control of a situation and dealing with market turbulence is no different. Our main investment solutions, run by IBOSS, are reviewed on a daily basis and will continue to be. As always, we have three options. We can increase risk, we can decrease risk or we can sit tight and do nothing. The first 2 options imply that we have suddenly developed a new skill for short-term market timing; unfortunately, we have not.
Stimulus and new stock market records
Central Banks around the world have made considerable efforts to reassure markets, whilst many (but not all) governments had made a lot of noise but delivered relatively little. This dithering led to a market panic not seen since 2008 and, by some metrics, to volatility and drawdowns never seen before.
Only after epic falls can there be records rewritten for market surges higher. This happened over a 2-day period with the US stock market where the increase has only been surpassed in 1987 and 2008. The reason for the recovery and subsiding panic was the Fed’s unprecedented package of monetary easing, and latterly the US Senate’s approval of a fiscal stimulus package worth circa $2 trillion, with the goal of staving off some of the direst consequences of the US economic downturn.
Fiscal packages of varying magnitude are being urgently discussed/implemented around the globe. The whole world is vowing to do whatever it takes to preserve their individual economies – anything goes.
Not everything has changed
The global stock market falls and subsequent, relatively small, bounce back has left some of the previous trends in place. The US tech giants (such as Facebook, Amazon, Netflix, Google) have held up relatively well whilst, at the other end of the scale, many companies that were already struggling have been hit extremely hard. In the fixed income space, sovereign bonds holding up well whilst emerging debt, and particularly high yield bonds, have suffered.
Given our relatively cautious stance going into February 2020, our performance has been fairly strong across the IBOSS investment range in comparison to similar investment solutions. We have delivered strong returns over many years by neither going gung-ho when there has been market euphoria nor becoming (in our opinion) too defensive during market falls.
It will come as no surprise that we expect considerable volatility for the foreseeable future but, as we always remind ourselves and others, this can bring opportunity. Every time a market effectively crashes the situation has both similarities and differences from all previous ones. The timescales for the falls vary, as does the recovery, but in the end, history shows us that they do recover. We believe we have the correct exposure to some of the best underlying fund managers and different asset classes. This should give us the capability to capitalise on what are, in some cases, super distressed stock markets. It may be that when we finally get to the end of this traumatic period, and into a position where we can properly consider the results, we re-evaluate what and where value is in the whole investment process. The one thing we will not try to do is play the markets and try to time when they might reach the bottom or when they might recover, as we would inevitably get it wrong. It is important to focus on the benefits of long-term investing. It might seem uncomfortable to remain invested when markets have fallen at such a rapid rate, but remaining patient can be key.
Please note: The value of your investments and any income from them can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.