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Coronavirus

BULLETIN 2 – THE PERFECT STORM

Stock markets have seen steep falls over the last few weeks, with last Monday’s drop already being called ‘Black Monday’ and likened, post-ante, to 1987, 2000 and even the Great Financial Crisis of 2008.

At the root of this rout lies the newly discovered Coronavirus, COVID-19. A virulent virus which, like the common cold, is infectious. In the next few weeks, it is predicted that it will have reached most corners of the world. The number of people infected is likely to rise sharply, and the death toll will continue to go up.

However, it is important to look at both sides of this issue; the virus itself and the man-made panic that has ensued.

No better conspiracy theory could be invented than a previously unknown Chinese virus bred in the wet markets of Wuhan; the word ‘virus’ echoes so neatly suspicions about Huawei and Chinese subterfuge in general. Images of deserted Chinese cities, stranded cruise liners and empty supermarket shelves, merely adds to this sense of panic. COVID-19 is the latest phenomenon to fulfil a weird and growing appetite for doom among the populations of developed countries. When the Federal Reserve cut interest rates last week, usually a move to be welcomed by stock markets;  instead they fell as investors conspired to ask, “Does the Fed know something the rest of us do not?

It is worth listening to the experts, especially our very own excellent Professor Chris Whitty, Chief Medical Officer of England. He has urged us to take the virus very seriously – and that was before the virus was declared to be a pandemic by the World Health Organisation – and watch as the science builds.  But he also reassuringly pragmatic.

Fortunately, we invest for the long term, and as we look to own equities whose cash-flows are forecast to be attractive over the next 30-50 years, what does a six-month hiatus matter? Indeed, if you look at the graph below you will see the long-term impact on the S&P 500 of the Coronavirus and the previous six epidemics that the world has faced in the past twenty years. While there remain good reasons to be suspicious of ever ascending asset markets, COVID-19 is not one of them.

Equity markets have now pulled back to much more attractive levels and we would encourage investors with a long-term investment horizon to look on this as an opportunity to buy. (The FTSE 100 fell last Monday to a level lower than it was 20 years ago.)

Despite the word of the doomsters, we are living in the healthiest, most peaceful time in history, yet such news does not sell newspapers or provide engaging copy. Perhaps it is time to embrace a bit of optimism, trust our scientists, our world-class National Health Service, our pro-business government and a raft of excellent UK based corporations.

Numbers 12th March 2020 – Bulletin 2 28th February 2020 – Bulletin 1
UK COVID-19 cases 373 20
FTSE 100 5,530 6,580.61
Bank of England Base Rate 0.25% 0.75%
Oil Price 37.22 50.52

 

Kind Regards,

 

Victoria Simon Andrew