March 2020 – Mid Monthly Update
“The investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizeable declines nor become excited by sizeable advances. He should always remember that market quotations are there for his convenience, either to be taken advantage of or to be ignored.”
Ben Graham, The Intelligent Investor
As March continues, volatility remains at high levels. A massive sell-off in risk assets on Monday, March 9th caused by a spat over OPEC market share between Russia and Saudi Arabia was followed the next day, by a bounce back only to be followed the following day by a realisation that this sell-off is about COVID-19 and the unknown extent of its impact.
By impact, we are referring less to the apparent ease of contagion and relatively low fatalities by comparison as a percentage, but more about the draconian measures that may need to be adopted to arrest contagion. China set the template, followed by South Korea and now Italy has picked up the baton by quarantining 60 million people subsequently followed by Spain and France.
In the past week a number of central banks have cut rates starting with a 50bps cut by the US Federal Reserve and latterly 50 bps by the Bank of England as part of a coordinated stimulus package with the Chancellor of the Exchequer’s expansionary budget. Markets, initially supported by these measures, have reverted to concerning themselves about how long and how widespread COVID-19 becomes and therefore, how long economic go-slows and resultant recessions are.
If the rest of the world follows China’s timetable, China’s relatively stable equity market performance since exerting virus control may prove instructive. We don’t know how long this situation will continue and frankly, nor does anyone else. Markets will want to see a drop off in new infections before volatility abates to any degree.
What we do know …
…is that risk assets have become appreciably cheaper. But we are not here to dabble in volatile markets with your clients’ wealth nor are we especially more adept at market timing or picking the bottom than anyone else – ‘catching a falling knife’ has become quite a popular phrase. There is a lot of monetary and fiscal stimulus in place for when COVID-19 infections recede and more may be coming. Such events do tend to change the path of the future.
Trends have dominated the past two decades. The ‘noughties’ were about globalisation which carried through to the 2010s where platform companies emerged as the big winners. Sustainability has already been established as a trend for this decade to be joined by onshoring as companies seek to take more control of their supply chains. Digital transformation too.
“It is largely the fluctuations which throw up the bargins and the uncertainty due to the fluctuations which prevent other people from taking advantage of them”
John Maynard Keynes, The General Theory of Employment, Interest and Money