Coronavirus & My Investments

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Bank of England Governor,  Andrew Bailey speaking after taking over Monday

1 week after a cut in interest rates and eased capital requirements on Banks as part of a co-ordinated stimulus with Rishi Sunak’s Budget
Disruption to the economy had clearly taken place over the last week, and the aim of the Bank and the Treasury was to prevent it becoming destructive”
“We want to minimise the economic disruption and don’t want a persistent effect that destroys the supply capacity of the economy

 

Assessing the global impact of Covid-19

Investors are increasingly worried by the spread and the impact of the virus, which has resulted in large falls in markets
Predicting the final outcome is impossible this early on, so governments and investment companies are tracking infection rates globally, trying to create a framework to analyse economic activity.
This early into the Pandemic, data is changing daily and the frequency of alteration is fierce
hence, economic stimulus packages are now coming thick and fast, with differences across the global economies, but all aiming to limit problems and maintain financial strength

 

 

Information Overload

Now that we are working from home or self-isolating, the raft of “information” uploaded or shared across social media platforms is mind blowing
We need to remember that once we share something, we take responsibility for actions of our friends that read it.  before sharing, check the source, check again, fact check once more

 

 

 

 

Taking stock (pun intended)

I have outlined scenarios below that have been summarised from data feeds we recieve daily from investment managers, economists and market strategists.
These are in evolution, due to the many unknowns and ongoing research, but we need to start somewhere and encompass what is driving the day to day swings across asset markets
Scenario 1 (probability 40%)
  • Larger hit in China’s GDP for at least 2 qtrs, but minimal impact on rest of the world
  • Strong bounce back from China as inventories are rebuilt & services /production/consumption resumes
  • Growth picks up gradually, inflation subdued, interest rates low, risk assets progress
  • Monetary & fiscal policy unchanged outside Asia
Scenario 2 (probability 25%)
  • Containment in China doesn’t work & the spread continues
  • Quarantine extended for months
  • Demand & supply chains are affected, which will add pressure on firms to diversify supply chains and start the acceleration of de-globalisation
  • A break in the global supply chain will increase costs on goods and this effects global output and demand
Central Banks will also look at ways to keep inflation low, as this can be a shock to the economy and we have got used to a low interest rate / low inflation economy

 

What about my ISA’s and Pension

 

 

 

 

Sharp falls are tough to experience, especially as you effectively watch your money get lower.  In the early days of a panic such as Coronavirus, it can seem like it won’t stop falling
The last time I experienced this in my career was the 2000 dot com crash, which was created by one sector and fed through to the whole market.  At that time, the resulting recession lasted around 2 to 3 years
However, Government Bonds, Corporate Bond and Commercial Property funds provided double-digit returns, while equities struggled.  Having a diverse portfolio is important, but in the early stages of any crises, all assets fall initially
The falls (especially the sharp ones), tend to be driven by fear of the unknown, an expectation of high levels short-notice withdrawals and investment companies trying to maintain a cash base from which to manage their own cash flow needs.  This was played out Tuesday, as Bond markets struggled, with a sell down of cash-backed assets
Looking over the longer-term , sharp falls have always played out in the dark days, as markets seek to find a value that suits the daily knowns and more importantly, unknowns

During the falls (marked in red) – 2000 dot com crash – 2008 financial crisis, being the most recent and memorable, it is important to consider the timescale of your needs
If you invested for the long-term, which is the main aim of invested money, surrendering is the point at which the falls become an actual loss
Take advice, consider any other options that may be available.  Governments are currently working on and announcing financial packages to help individuals, companies, the economy and thereby, the financial system
I understand that watching the value of Pensions & ISA’s fall is worrying, especially as the news all around is also troubling.  Each recession or stock market crash I have experienced started this way, the decisions I am helping clients make are not devoid of emotion, and the outcome of every decision is arrived at in making the best it can be after taking account of personal needs, timescale and financial pressures affecting them

 

 

 

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