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02 March 2020

Mass panic, or buying opportunity

James Rowbury, Investment Research Coordinator, Redmayne Bentley

UK markets experienced sharp losses last week, as investors reacted to the raft of news flow. Early in the week, reports of Coronavirus cases rose sharply in Italy, South Korea and Iran, which led to increasing concerns about the rate of the international spread of the virus and the potential global economic damage.

On Thursday, Boris Johnson announced that he is willing to pull back from Brexit trade talks if significant progress is not made by June, and prepare for an exit on World Trade Organization rules, which would include extra tariffs and bureaucratic difficulties. Such a decision was made to stop the EU from stalling until December 31st and making it difficult to make changes if needed. However, Brussels remains adamant that the UK must maintain a “level playing field”, in terms of alignment to the bloc’s rules.

Just as markets were breathing a sigh of relief at the dampening of trade war tensions and renewed confidence around Brexit, the disruptive impact of virus fears hit investor sentiment. The FTSE 100 crashed 7.63% for the week amidst rising uncertainty in the market. Similarly, the Pound lost 0.38% against the US Dollar and 1.84% against the Euro.

Global markets have also suffered heavily over the past week, as fears of a potential pandemic are growing. Over the past week, Italy has reported a rise of the number of Coronavirus infections to 453 and deaths to 12, South Korea reported 1,595 infections and 13 deaths, while Iran reported 139 infections with 19 deaths.

A warning has been given by an official of the Centers for Disease Control and Prevention that it is only a matter of time before the US will also start seeing increasing numbers of infection cases. The news caused a flurry of sales all around the globe with indices posting significant losses, as the US S&P 500 declined 6.62%, the Hong Kong’s Hang Seng dropped 1.76% and China’s SSE Composite Index fell 1.64% for the week. Despite the negative sentiment globally, the US government reported that the sales of new homes reached the highest level since 2007, as January 2020 sales were 18.6% higher than in 2019. For some, the mixed news may present a buying opportunity in markets that have been otherwise stretched on valuation grounds.

Please note that investments and income arising from them can fall as well as rise in value and you may lose some or all the amount you have invested. Past performance and forecasts are not a reliable indicator of future results or performance. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the companies mentioned.
 
Mass panic, or buying opportunity

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