Mar 24 2020

The impact of coronavirus is being felt right across the UK and I hope that you, your family and your friends are keeping safe and well.

Despite the disruption, I wanted to reassure you that here at Fairstone we have strong business continuity plans in place and as a result, 90% of our staff are fully operational from home with our remaining people keeping our offices open.

Our primary focus is you and your financial objectives and as always, it is important that you stay focussed on your longer-term goals.                                                 

Over the last week, both equity and bond markets saw further falls, however, in equity markets’ case these falls were less severe than in recent weeks; indeed European equity returns were broadly flat or slightly positive for the week, albeit helped by a weaker Pound Sterling.

In the UK, Prime Minister Boris Johnson announced that the UK will go into lockdown from the evening of 23rd March. People will not be able to leave their homes except for specific purposes such as buying essential food items, exercising, for medical needs or to work if strictly necessary.

The restrictions will remain in place for at least three weeks, with the police given powers to disperse gatherings and fine offenders. Their aim is to further flatten the curve of infections as much as possible so that the NHS isn’t overwhelmed.

Stimulus and support measures have been flooding in, with huge sums of money pledged by governments and central banks to shore up labour markets, struggling industries and global banking systems.

The Chancellor Rishi Sunak – who, let’s not forget is just weeks into the job and now having to announce the largest and most radical government rescue package in modern times – announced a £330bn programme of guarantees designed to mitigate the virus’ economic impact. These include government-backed loans and grants for businesses, and access to cash for any company that needs it to pay rents, suppliers, staff or to purchase stock.

Indeed, on top of this Sunak stated that he would provide ‘whatever is required’. This is a theme we’ve seen play out globally, with the German finance minister uttering the same as they announced their own enormous stimulus plan.

Whilst these perhaps have not had an outsized impact on investment markets yet, we believe their true worth will be in ensuring both that we make it through this crisis with as little permanent damage as possible, and that we then have an effective springboard from which to launch a concerted recovery programme.

As before, we expect volatility to remain high in the short term as lockdowns are imposed or continued with greater restrictions. Given how far equity markets have fallen, we now certainly have a ‘cushion’ against further bad news, though potentially not a very comfortable one.

As before, we are looking very closely to infection rates particularly in Continental Europe, for the first signs of a peaking in new cases. Whilst one or two days does not make a trend, over the weekend new case numbers in France, Germany, Italy and Spain fell – we hope this continues for reasons not just investment related.

Finally, looking forward, the chart below (courtesy of Goldman Sachs) takes a look at different types of bear market, split roughly by ‘cause’. For example, the global financial crisis in 2007/8 was a ‘structural’ downturn caused by a gradual build-up of banking system excesses.

By contrast, the current market environment is an ‘event-driven’ decline, the takeaway point for which is that downturns tend on average to be shorter and sharper, and their recoveries to be faster than other variants. Whilst this may be of little comfort, and the time frame of this particular event uncertain, we still expect that once under control, the eventual economic recovery will be very strong indeed.

If you would like to discuss any of the above points or you would like to review your current position, please do not hesitate to get in touch.

The value of investments may fluctuate in price or value and you may get back less than the amount originally invested. Past performance is not a guide to the future. The views expressed in this publication represent those of the author and do not constitute financial advice.

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For further information, please contact:

Andrea Barker andrea.barker@fairstone.co.uk / Tel. +44 (0) 191 519 6243