Calling the Bottom
Published by Sophie Fillmore on 2020 04 17
As I sit to pen this article, self-isolating in the office with all the rest of KDW at home, I can’t help but think what an unbelievable time the last 6 weeks have been. Thoughts turn to a cancelled holiday in France, a postponed charity bike ride in Italy and hazy days at Lords that will surely be cancelled amid the COVID 19 outbreak.
The markets have had a torrid time and the initial shock of the outbreak sent markets plummeting. The old adage of buy low and sell high is obvious in hindsight, but the extent of debt of the initial sell-off meant that only the lucky ones that were mid transfer, or had an investment mature to cash, were lucky enough to be holding cash. I was not one of the lucky ones. The initial market fall meant that “if you’re in, you’re in” and it was too late to sell by the time we stood back and realised what had just happened. The fund managers who run the risk-rated portfolios were busy during that initial period repositioning portfolios and minimising damage. To a large extent they achieved this - where the FTSE 100 fell by 30% at one point, the balanced funds only suffered half that fall. It’s a strange old world when clients were happy that they were only down 12%. The markets have recovered somewhat since then and those that held their nerve have benefited from the partial bounce back.
My thoughts then turn to those clients that have held cash, the lucky ones. Is it too early to call the bottom? Is it all onwards and upwards from here? If it is, then there has never been a better time to invest, and when we look back with hindsight this might indeed be the case. But few are brave enough to fully invest. There are still significant headwinds which will need to be considered and overcome. The UK has just been locked down for a further 3 weeks; when staff are “unfurloughed” (if indeed this is a word – although I’d never even heard of furlough some 4 weeks ago) will this lead to mass redundancies? How long will it take to pay off the mounting debts being accrued by the government? Taxes are almost certain to rise post-crisis – that’s before we consider our old friend BREXIT.
That being said, one thing is for certain - the collective “we” will come through this and once we’ve brushed ourselves down, we will all get back to work and the cogs of the world economy will start to turn. There are positive signs, even at this early stage. The quarantine imposed by many governments has flattened the curve and China, where this all started, and South Korea have returned to work without any appreciable upturn in infection rates. Although this is not the panacea to the COVID 19 crisis, it is a positive development in a gloomy period. The other positives are that global governments and banks have backed the citizens whilst we deal with the virus. There will be a recession, of that there is no doubt, but predictions are that the downturn will last until the middle of the year or possibly into early 2021 when the recovery will begin. The unprecedented levels of fiscal and monetary stimulus will continue aiding the recovery and Donald Trump – love him or hate him (please don’t email in) wants to get re-elected in November 2020. He has promised to make the American economy boom by then, so expect a big cheque book to come out, probably with a Donald Trump photo on the cheques.
Although I’m not calling the bottom, I suspect that if we are not at the bottom, we are pretty close to it. There will be volatility over the next few weeks and into summer, but the consensus view seems to be that we will experience a U-shaped recovery, with the fragile market building gradually from here over the next 12 to 18 months. We are seeing more and more clients starting to invest and phasing in their cash into the markets over 4 – 10 months, depending on their views. If you are looking to invest over a 5 year plus period, then this might be the opportunity to take a calculated risk and start to reinvest. One thing is for sure - saving interest rates are low and going to stay low until the recovery is well underway.
If you would like to talk through the merits of phasing in your cash back into the markets, please contact your Adviser.
Stay safe and clap the NHS on Thursdays.