The World is now heading to a recessionary phase. Until the pandemic is reduced, or eliminated, then financial markets will be held in waves of paralysis, followed by dramatic lurches, both higher (yes, higher), but mostly lower.
How seriously do you take the warnings on corona virus?
If Governments around the World advise Citizens to isolate and to protect, not only themselves, but their loved ones, their fellow citizens and the fabric of their community, then I am worried. Fear of supply chain disruptions and being stuck at home make people want to build a store of supplies. Of course, this has been going on, subtly, over a long period of time, probably starting around the turn of the year as the news from China started to build out and now we are seeing a crescendo of frenzied buying in stores.
Thoughts thereafter turn to all types of important medical supplies that will help alleviate symptoms in case of contagion.
Rapidly, the focus turns to vulnerable family members, with plans on how to look after those people who are the centre-point of our lives. We are all motivated in this by official statements from national and local government, healthcare organisations and reliable news sources, aka the media. There is no official advice however as to what you should do with your savings and unless you are an avid reader of financial press and financial bulletins you will not have picked up any official advice on what to do financially.
Corona Virus & Financial Advice
It is a fact that whilst the health service has been at great pains to keep us all informed, the financial services equivalents, which would be regulators, or the treasury have not even whispered that perhaps, just perhaps, we should take action over protecting our wealth as well as our health. The focus has been on protecting the financial system, not the individuals that use the financial system. Boris Johnson recently advised us all to be prepared to deal with the loss of loved ones. Tough words and an awful message to deliver... but it had to be done.
In this time of rapid change and difficult communication, we need to also face up to financial reality. Stock and Bond markets are crashing. Companies are going broke. Unemployment is advancing at a far greater rate than the actual disease. The Corona Virus effect on financial markets has been immense and greater than anyone would have believed to be possible at the start of the year – just 2 ½ months ago. All investments have been pummelled by uncertainty and fear. There have been no exceptions. Investors now have to face up to the fact that they will lose money. Tough words and an awful message to deliver. But it has to be done.
What Has Your Adviser Told You?
Investment Advisers need to wake up to this reality and tell this message their clients. Good advisers will be doing this already, exceptional ones will have taken preventive action, isolating client’s wealth at the early stage from the market virus spiral.
This is a whole new world, it is very alarming. We do not believe that markets will recover, fully. Certainly not in the generally accepted sense. Indices will recover their poise as volatility reduces and perhaps, even after many years, retest old levels. The makeup of indices will be wholly different as certain companies flourish, whilst many others flounder.
It is time to think long and hard about the reality of the situation. The World is now heading to a recessionary phase. Until the pandemic is reduced, or eliminated, then financial markets will be held in waves of paralysis, followed by dramatic lurches, both higher (yes, higher), but mostly lower.
We are astonished and truly humbled by the rapidity and extent of the moves in the markets so far. This level of market volatility and distress goes far beyond any normal investment cycle and investors need to understand this point. Low levels of communication which are essentially clichés fail to recognise the seriousness of this situation.
Investors, especially private individuals entrusting their life savings, deserve to be treated with the integrity that covers communications, delivering messages of concern in difficult times as well as those more promising messages during better times. Other, old stockbroker phrases come into play such as; “it’s a buying opportunity”. Clearly, there will be moves higher as markets rebalance, but they may prove to be short lived and followed by double size falls.
There are many facets of the market that are the proof of the pudding to our view that stocks and bonds are going to be experiencing even more turmoil. However, one small piece of the market sell-off, to us, speaks volumes. If you were to look at the stock prices of quoted investment management companies, you will discover that they have almost halved in value since the start of this month, in some cases underperforming indices by a wide margin.
When the market does not believe in the very people who professionally invest in the market, the same ones who advise clients “it’s part of the cycle”. You know there is something wrong....
If the fisherman’s wife won’t buy the fish... then its bad fish.
We are not buying fish.
Peter Smart
Head of Investments
SaSoStrategic Advisers
19thMarch 2020
The commentary has been prepared solely for informational purposes for the recipient, it does not constitute an offer to buy any service, financial product or make any investment or a solicitation of offers to buy any service, financial product or make any investment nor should it be considered as investment advice. Any offers to buy any service, financial product or make an investment or solicitation of offers to buy any service, financial product or make an investment through the provision of investment advice will be made only pursuant to definitive agreements and other documents and information that may be subsequently provided.
Investing or dealing in any financial product should not be considered unless its nature and the extent of the exposure to risk is understood. All investments and financial products involve risk which include (among others) the risk of adverse or unanticipated market, financial or political developments and may include currency risk. Some investments and financial products might carry greater risks than others. Past performance is not a reliable indication of future performance. Investments can go down as well as up and involve the risk of loss.
The commentary is based on information generally available to the public and does not contain any material, non-public information. No representation, warranty or claim is made that it is current, accurate or complete.
SaSo Strategic Advisers Limited is regulated by the Jersey Financial Services Commission for the Conduct of Investment Business.
About the Author
Peter Smart, Head of Investments
01534 488778
Peter has been involved in investment markets since 1985, working within the private client areas of two global banks and for 22 years as the fixed income specialist for the UK Wealth manager, Brewin Dolphin. More recently Peter formed part of the investment team at bridport in Jersey specialising in the provision of specialist, income focussed portfolio’s.