Financial Markets – Corona Cuts a little Deeper

A week on from our last update, markets have ebbed back and forth a little but really its been one step forward and two steps back. The latest economic indicators have been particularly dismal – jobless rates have soared, business confidence is very low and falling, companies have provided very uncertain outlook statements and many have announced dividend cuts. On the other hand, the steps taken by central banks, notably the Federal Reserve in the US and the ECB in Europe, both stepping in to provide major supports to bond markets, have helped to stabilize things somewhat. However, the big question for markets remains – what long term damage will be inflicted on the major economies as a result of a prolonged lockdown. A sustained shutdown of economic activity will have a terminal effect on many small businesses and many will never reopen in the absence of Government supports.

But there are limits to what governments can and will do even in extreme circumstances and unlimited support for small businesses is unlikely to be a feature for more than a few months. One emerging view is that Governments will differentiate between sectors which are seen as strategically important (Healthcare, Energy and Food for example) and non-strategically important sectors (Leisure, Travel and Media for example) and gradually shift their supports in the direction of the former. As for attempting to predict what will happen next in stock markets, as usual we should look to the US. It is very clear to most outside observers that reality has not yet fully hit home in the US just yet as to potential duration of the virus and the resulting death toll. When it does, it is hard not to see a further downward move in markets.   The table below shows key market performances year to date expressed in euros.

Market                                 Perf. YTD (euro terms)

Ireland                                                   -23%*

UK                                                          -27%*

Japan                                                     -20%*

Europe                                                  -28%*

US                                                          -23%*

China                                                     -15%8

*Source: Financial Times, Financial Express

While there has been some evidence of increased gold purchases and there have also been increased buying of sovereign, particularly shorter term bonds, most asset classes continue to be shunned as investors try to work out where prices could fall to.

Too Late to Sell and Too Early to Buy?

For holders of well diversified equity and other funds, we are sticking to our advice to sit tight. These funds will certainly recover over the medium to longer term. Because of the very real risk that we will see a further downward move in markets in the coming weeks, almost certainly led by the US,  we cannot take the view that markets have bottomed out yet with any degree of certainty. That said, there is clearly value in many sectors at this point and investors buying on a selective basis now will probably not regret their decision in five years time.  For those investors who  would prefer to be buying when the worst is clearly over, and who are happy to miss the first phase of the recovery, it is safe to sit on the sidelines for a while longer.

If you have any queries in relation to the above, please contact your Harvest on 01 2375500 or email justask@harvestfinancial.ie

Our Current Thoughts on Markets

This marketing material has been provided for discussion purposes only. It is not advice and does not take into account the investment needs and objectives, financial position, risk attitude, liquidity needs, capital security needs and;or capacity for loss of any particular person. It should not be relied upon to make investment decisions.

Warning: Such forecasts are not a reliable indicator of future performance.