Although the end of the crisis is potentially now in sight, the path to recovery may well still be bumpy over the coming quarters as governments grapple to control the virus. Seasonal factors make this more difficult through the winter.

The three announcements of effective vaccines is evidently a major milestone and a credit to science to get this far so soon. Attention now turns to how quickly they can be manufactured, distributed, and administered on a mass scale. There remain logistical challenges, but one has to believe that this is certainly positive progress.

Vaccines abound

Governments and central banks continue to support economies globally and have carried them through the worst of the COVID-19 crisis. The vaccines provide hope that an end is in sight, which should give policy makers the confidence to do more in the coming months.

In addition, we continue to see a strong recovery in Asia, and in particular China. Not only has this region been more successful in containing the pandemic, but structural growth prospects are also in its favour. We still believe that we could see a progressive recovery in a return to synchronised global growth over the next 12-24 months, with equities continuing to perform well relative to other asset classes as bond yields remain low. The extraordinary debt burden for companies and governments coming out of the pandemic is likely to result in an extended period of low interest rates and continued central bank asset purchases.

There are of course various scenarios that could provide unwelcome headwinds to the recovery. The global economy does still remain vulnerable to rising COVID-19 infections and the potential for further lockdowns. Lockdowns evidently have a catastrophic effect on economies and without the support of central banks and governments the current situation would be a lot worse.

Across the pond

Near term political risks continue to exist. Despite the US Election passing without too much drama, the recent events on Capitol Hill highlighted that President Trump seemed unwilling to go quietly. The prospect of a less confrontational presidency under Joe Biden has pleased markets. However, now that the Democrats have control of the Senate, the potential for higher taxes and a tightening of regulation for technology and healthcare companies is more likely. In the meantime, though, the expectation of further stimulus should continue to support markets.

Elsewhere, credit deterioration and near record low bond yields, in some cases negative, continue to create some sort of bubble in bond markets. Many commentators believe market valuations in earnings estimates remain too high. Much depends on the strength of the underlying recovery.

Our central case for 2021 is a vaccine rollout in the first half of the year, followed by a robust recovery in the second half. However as mentioned previously there are risks to this scenario. We would continue to advocate adopting a defensive stance albeit with a bias towards equity and with a focus on high quality investments.

Alasdair Pike
Senior Investment Manager

There is a lot going on at the moment. The benchmark Footsie index managed a modest recovery as the final quarter of this difficult year got under way. That said, holding above 6000 is proving difficult right now. With tighter restrictions being brought in to cope with the spread of Covid-19, this is hardly a surprise. The hospitality sector continues to be under threat The new three-tier regulatory system is only adding to its woes.

In America, President Trump is back on the campaign trail after what must be one of the briefest infection experiences on record. The betting continues to favour a Biden victory, but the arcane nature of the election process makes predicting the outcome particularly difficult. Whatever your views of the current incumbent of the White House, a Trump victory is likely to be better for markets. Whether it will make any difference to trade negotiations is anybody’s guess.

Retailers and housebuilders issue trading statements

Here at home there is little in the way of corporate news emerging at present, though a number of companies have been issuing trading statements. Amongst these are Barratt Developments, which provides an insight into how housebuilders are coping with the current crisis. Elsewhere, Just Eat and online retailer ASOS also published full year results. Barratt was pretty upbeat and arguably the other two are proving beneficiaries of the pandemic.

Economic news is also thin on the ground, though the International Monetary Fund has published revised estimates for the global economy. They are predicting a better outcome for the current year than they previously thought, however next year’s recovery is likely to be slower than they expected. Our own economic performance is forecast to be the second worst in the G7 nations. Only Italy delivered a less good result. China, on the other hand, looks to be back on a growth tack.

Individuals and markets have adapted remarkably fast

Notwithstanding this, the pandemic and the US elections are likely to continue to dominate investor sentiment. On the pandemic front, what has been interesting about the events of the past eight or so months is the speed at which companies and individuals have adapted to the new normal. As yet it is impossible to see quite when this rather strange period will come to an end. Indeed, some aspects of life may never return to how they were before, but there have been winners as well as losers in the shake up that has taken place. We should all take encouragement from that.

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Brian Tora, who is a respected writer and broadcaster on investment issues, is a consultant to JM Finn. Brian has enjoyed a long and distinguished career in the City. Any opinions expressed are his own and should not be construed as advice from JM Finn. A version of this article may appear elsewhere in the press.

BP, one of the income paying stalwarts of the FTSE 100, has announced it is halving its payout to shareholders as a consequence of the fall in the oil price. This news reinforces the comments I made two weeks ago that dividends are under threat. Oil naturally suffered from the drop in global economic activity, though it is well above the levels to which it plunged earlier in the year. But there are plenty of other pressures on companies that could lead them to conserve cash. Indeed, the extent to which the pandemic has impacted countries’ economic performance continues to make grim reading.

In Europe

We learned recently that Spain’s Gross Domestic Product had shrunk by 18.5% in the second quarter of 2020. It had already contracted by over 5% in the first quarter, so the pain the country is suffering following the collapse in tourism is very real indeed. The Spanish experience was the worst in Europe, which overall saw a decline of around 12% in GDP. Germany’s experience was somewhat better, registering a 10% contraction. The news that inventories there have started to fall is encouraging. There are other signs of an improvement, with forward looking economic indicators turning up.

We are right in the middle of the reporting season for companies declaring their second quarter or first half year profits. Results have been mixed, but with relatively few surprises, given the problems faced by a variety of businesses. Markets have held up remarkably well in the circumstances. The US is proving to be particularly resilient, given the near one third decline in its economy during the second quarter and an apparently worsening Covid-19 situation. As we approach the Presidential election later this year, I can’t help but wonder if this apparent confidence can hold up.

What’s in store for the rest of the year?

So, as we enter high summer, the economic effect of the pandemic continues to dominate investor sentiment. Gold has experienced a resurgence of support, with the price topping $2000 for the first time. Of course, a weaker dollar has helped, though gold’s safe haven status does seem to have come in to play in no small measure. Elsewhere, with interest rates at near rock bottom levels, it is perhaps less surprising that shares should remain in demand. But more high-profile dividend cuts could undermine this fragile confidence. Even so, learning that we have a proper vaccine could turn things around in a positive fashion. Let’s hope we get one soon.

About the author

Brian Tora, who is a respected writer and broadcaster on investment issues, is a consultant to JM Finn. Brian has enjoyed a long and distinguished career in the City. Any opinions expressed are his own and should not be construed as advice from JM Finn. A version of this article may appear elsewhere in the press.

Markets have been rather mixed as we move towards high summer; perhaps this reflects the somewhat mixed weather we are experiencing. While the easing of lockdown measures at the weekend undoubtedly helped sentiment here, the strong words from the Chinese ambassador put something of a dampener on proceedings. As we approach our departure from the European Union, nobody wants a trade war with a powerful nation like China.

In the United States shares have been remarkably buoyant, led by technology stocks. However, many states have had to reverse easing measures that were introduced arguably too soon. The picture around the rest of the world is similarly mixed. The Brazilian president Bolsonaro has tested positive for coronavirus; localised lockdowns have been put in place in Australia and Spain, not to mention Leicester. It is becoming clear that this pandemic is likely to change the face of society dramatically all around the world.

The picture at home

The Chancellor of the Exchequer has announced more measures to help the economy back onto its feet. Job losses are now being announced on a daily basis across a wide range of businesses, so much of Chancellor Sunak’s efforts are being targeted at stimulating the jobs market. Nevertheless, it is hard to see unemployment not rising significantly as a result of the difficult conditions that beset our economy.

That said, not all the economic news is bad. China appears to be recovering more swiftly than many expected. Some of the leading economic indicators in Europe are more encouraging than we had any reason to hope for. Not that Europe is a one-way street, with the European Commission expecting a deeper recession for the euro bloc this year and forecasting a slower recovery in 2021. France Italy and Spain are singled out as likely to see a contraction in GDP of more than 10% this year, although prospects for Germany appear to have brightened a little.

There will undoubtedly be winners and losers in the unsettled conditions in which we find ourselves. Presently technology seems to be the outright winner, though I fear we can expect more attention from governments on how these data gatherers behave, given the increasing power they now have. We have much to travel through in the months ahead. But, in the end, it will be how swiftly we adapt to the new normal that will determine how the recovery develops.

About the author

Brian Tora, who is a respected writer and broadcaster on investment issues, is a consultant to JM Finn. Brian has enjoyed a long and distinguished career in the City. Any opinions expressed are his own and should not be construed as advice from JM Finn. A version of this article may appear elsewhere in the press.

Market Commentary 13th May 2020 – The end of the beginning?

The news that our economy took a near 6% hit in March, resulting in a contraction of 2% in Gross Domestic Product for the first quarter of the year, was sufficient to bring the recent run of rises in the Footsie to an end. This was a smaller fall in GDP than some had predicted. However, with markets in the US and Far East moving into reverse, investors took the news badly and shares handed back earlier gains that had been attributed to an improving situation in terms of controlling the virus in a number of countries.

A slow process

This has allowed the slow process of lightening the lockdown load to begin – not just here, but in America and Europe as well. There won’t be much of a change for the majority of us back in Blighty, but the belief that there will be an end to this crisis had allowed investors to regain a little confidence. Indeed, the recovery in our own benchmark FTSE 100 Share Index from the March lows had been quite impressive. Shares had risen by around a fifth, while on the other side of the Atlantic the gains were even greater.

But this rally in share prices soon ran out of steam. The main concern elsewhere in the world seems to be fear of a second wave of the pandemic. This is looking a possibility in parts of China and South Korea. This could have consequences for the fragile recovery taking place. Clearly there will be significant economic pain all around the world as a consequence of the measures taken to contain the pandemic, but focus is now centred on the nature of the post-Covid recovery. Current sentiment suggests there is support for a V-shaped recovery. Only time will tell if that is achievable.

Change is coming

What is becoming increasingly clear is that this coronavirus outbreak will change things in a number of ways. There will be winners and losers as society adapts to a set of circumstances that were inconceivable just a few months ago. Online shopping has received a huge boost as people shelter in the safety of their own homes and the home delivery industry has blossomed as a result. But travel and tourism look to remain blighted for some time to come. Pollution has also reduced significantly as fewer planes take to the skies and car journeys are cut back by a colossal margin.

How long this will last is hard to forecast. It seems likely that we will not return to pre-pandemic practices swiftly – if at all. There will be some positives from this crisis. Not just in environmental terms, but also as a result of the ingenuity being shown to find ways around our current problems and in terms of a resurgence of community spirit. The end to this affair is likely to be some way off, but there are signs we are now moving forward.

Please get in touch on 02920 782330 if you would like to talk to us about the current situation. You can access your portfolio valuation here.

About the author

Brian Tora, who is a respected writer and broadcaster on investment issues, is a consultant to JM Finn. Brian has enjoyed a long and distinguished career in the City. Any opinions expressed are his own and should not be construed as advice from JM Finn. A version of this article may appear elsewhere in the press.

A March update on the markets from Brian Tora and our investment partners JM Finn.

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Opportunity or Threat?

What a turnaround in sentiment. After largely ignoring the apparent threat posed by the coronavirus, investors entered panic mode as the implications of the outbreak on the global economy became clearer. In the worst week for markets since the financial crisis of 2008, shares all around the world suffered a major correction. While some sectors will inevitably be hard hit by the measures being taken to limit the spread of the virus – like airlines and hotels – the selling pressure was indiscriminate.

There is an old stock market adage that says shares always overreact in both directions. The swift and significant bounce that we saw at the beginning of the week following the correction bears witness to this. However, it is still too early to assess the real implications of what is going on as whole cities are put into lockdown; most notably in China. Some companies have already warned of supply chain disruption. Apple said its trading results would be hit, but their shares were amongst the biggest risers when buyers re-entered the market.

Safe Havens

The likely consequences for the global economy are dominating sentiment at present. It is hard to find other issues that might affect the way shares behave. Oil has retrenched in anticipation of lower demand and gold has received a boost, which reflects its safe haven status. In the foreign exchange markets, the US dollar has been unsurprisingly in demand. Meanwhile sterling has suffered, though this is down to fears of a hard Brexit. Quite how these markets will react when countries start downgrading their economic forecasts is hard to assess.

We can be certain that central bankers will be more accommodating as they endeavour to stave off the worst effects of this current crisis. Indeed, the Fed has already cut interest rates by 50 basis points, though whether investors should cheer or fear this move is far from certain. It may make little difference to US economic performance in the near term. Back home, Bank of England Governor Mark Carney has warned of a significant economic shock, though he expects it to be of a temporary nature. We must all hope that he is right and the uncertainty will be short lived. In the meantime, though, we must expect continued volatility.

Please get in touch on 02920 782330 if you would like to talk to us about the current situation. You can access your portfolio valuation here.

About the author

Brian Tora, who is a respected writer and broadcaster on investment issues, is a consultant to JM Finn. Brian has enjoyed a long and distinguished career in the City. Any opinions expressed are his own and should not be construed as advice from JM Finn. A version of this article may appear elsewhere in the press.