Our Current Thoughts on Markets

As we stand now in the third week of March, most experts would agree that we are still some way off the midpoint in the Covid 19 cycle. This means that, hopefully with the exception of Italy, the virus still has some distance to travel in the Western world. In all likelihood, it will be months rather than weeks before identified cases start to trend downwards.

Markets have responded in devastating fashion and most of the world’s stock markets have fallen by more than 20% since the beginning of the year. Ironically, China is the standout market in global terms.

The table below shows key market performances year to date expressed in euros. 

Market                     Perf. YTD (euro terms)      
Ireland                        -35.5%*
UK                              -35.2%*
Japan                          -27.5%*
Europe                        -26.5%*
US                              -24.8%*
China                          -13.8%*         

Source: Financial Times, Financial Express

The rush to safety has been such that even assets which would normally be regarded as safe havens in times of uncertainty, such as bonds and gold, have also been sold by investors with valuations suffering as a result. Cash has been the asset of choice over the past number of weeks.
So What Exactly are the Concerns?
What is really concerning markets is the so called ‘demand shock’, meaning the rapid slowdown in consumer activity brought about by people remaining at home. There is hardly an industry unaffected by this phenomenon, either directly or indirectly. Aside from the obvious victims such as airlines, hotels, sports venues etc. companies involved in non-grocery retailing, housebuilding, financial services and many other sectors are also feeling the effects of consumers not spending or postponing discretionary financial decisions. And the problem for the markets is that the extent of this demand shock, in terms of depth or duration, is impossible to measure at this point.
And What Might Happen Next?
There is every reason to expect the volatility to continue for quite some time yet. A worry many have is that because of the way its being handled in the US (low level of testing and isolation not being taken very seriously in many states), the outbreak could potentially become quite nasty. If this comes to pass, markets could respond quite negatively there leading to a further downward market shift and the risk of an extended recession. For a host of reasons, not least the human cost, we would hope that this can be avoided. A more optimistic scenario would be for the various control measures to be effective and that new case numbers begin to tail off in early Summer. In this event, markets are likely to anticipate this and we could see a rebound in a number of weeks. The actual outcome is likely to fall somewhere between these two extremes.
So What Should Investors do Now?
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. On the other hand many clients are asking whether it’s a good time to invest given there must be value in markets at these levels. Our answer to that is probably yes but that there could be some short term pain to go through over the coming weeks for anyone buying now. For those determined to invest now, asset categories which may be worth considering could include the following:

  1. Healthcare – following the Covid 19 experience there is little doubt that spending on healthcare around the world will rise significantly.
  2. Food Production – supply chains are likely to shorten considerably in the coming years with greater emphasis on local production, a trend which will benefit many food producers.
  3. Oil – oil has suffered a double blow in recent months, first a Saudi inspired price war and secondly fears that the virus will lead to a sharp drop in demand. At below $30* per barrel, the price seems unsustainably low for the industry longer term.
  4. Technology – if we are looking at a future involving a lot less human movement around the world then there will be significant opportunities for tech companies to provide alternative solutions. There will also be a growing drive to diagnose and treat many medical conditions remotely using new technologies.

As usual our advice around investment at a time like this would be to phase your activity as much as possible.

If you feel strongly about markets right now, please contact Harvest on 01 2375500 or email justask@harvestfinancial.ie to discuss specific options in line with how your portfolio is positioned and your own circumstances.

Terry Devitt – Investment Director

In light of the potential spread of COVID-19 we are implementing our Business Continuity Plan to ensure an uninterrupted service to our clients.  We have therefore instructed our staff to work remotely for a period.  Please note that all colleagues are available either by email communication or phone as normal.  We would  however request your patience and understanding during this time. Thank you for your co-operation.

Focused Investment Strategies from Harvest

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.