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09 March 2020

Taking stock: markets decline sharply as fears of Coronavirus impact

The UK's stock markets are experiencing the greatest intra-day falls since the global financial crisis of 2008.

James Rowbury, Investment Research Coordinator, Redmayne Bentley comments:

“Having thought we had perhaps seen a trough appearing in global markets, over the weekend, Saudi Arabia began ramping up oil production in a bid to take market share from its European and US counterparts. To this end, the oil-heavy UK index plummeted over 8% in early morning trading, while the Brent Crude index fell over 20%. Looking beyond the short-term panic, weaker oil prices will offer support to businesses through the form of cheaper input prices and thus the extent of this morning’s sell-off may be unjustified.

“The immediate supply chain impact of the Coronavirus is now feared to have spread through to demand which could potentially limit the chances of a consumption pick-up after China gets back to work. However, history of past epidemics shows us that they tend to only make shallow impressions on markets. Chinese financial markets have demonstrated relative strength amid the expectation that it has curbed the virus and is on the road to recovery. We expect the impact of the last four weeks to have a short-term negative effect on earnings across a number of geographies and sectors, but we are yet to see any substantial evidence of how this will hurt our long-term positioning. 

“The big worry on investors’ minds is the similarity to the global financial crisis of 2008. Certainly, the initial fall bear parallels, but the drivers this time are very different. The collapse of the banking system was far more serious than the risk ahead of us. Though, that is not to underestimate the potential impact, particularly in the short to medium term. We expect Central Banks to respond with further stimulus, which should help consumers and businesses alike.

“For us, the focus remains on building robust and diversified portfolios that weather storms like these and perform over the longer term. Safe-haven assets continue to do their job as we expect, with the UK ten-year yield falling 46 basis points over the last month. While this may mute returns going forward, capital increase in bond prices have offset some losses in equity valuations. That being said, further stimulus from central banks in the form of rate cuts, may push these even higher.

“The losses incurred over the past week are only paper losses, and as such, a steady head and a long-term perspective will see positive returns in due course. We remain vigilant as ever, but we do see this crisis as being short term in the grand scheme of investment time horizons.

“If anything, the current sell-off will create opportunity in assets that have been trading on prohibitive premiums of late.”

Please note that investments and income arising from them can fall as well as rise in value. Past performance and forecasts are not a reliable indicator of future results or performance.
Taking stock: markets decline sharply as fears of Coronavirus impact
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