Very suddenly, very clearly, we are living in unprecedented times.
The death toll from the Covid-19 pandemic is rising around the world and, as we write this on Thursday evening, the Bank of England has just reduced interest rates to 0.1% – the lowest level in the Bank’s 325 year history. The FTSE 100 index of leading shares, which started the year at 7,542, closed on Wednesday at 5,080 and is down 23% for the month to date.
In this crisis, firms like ours can do one of two things. We can say nothing and hope for the best. Or we can communicate with our clients, give them the latest information and assure them that, whatever happens, we will still be here to answer their questions.
We have decided on the second course of action. And so, starting today, we are going to send out a Weekly Client Update. Some weeks the news it contains will not make pleasant reading: but we take the view that you would rather have regular contact than, as some advisers will opt to do, simply say nothing and cross their fingers for luck.
The Weekly Update will be split into three sections:
⦁ The latest news on the virus and the moves that are being taken to combat it
⦁ An overview of world stock markets’ performance over the week in question. Space may mean that we cannot comment on every market every week, but we will always give you the ‘highlights’
⦁ Lastly, our thoughts on the events of the week as we try to take a broader view and look to the future
The stock market figures quoted will be accurate as of the close of business on Wednesday. We will write the Update on Thursday evening, but clearly it must be proofread and compliance checked before we can send it out to you. Events are obviously moving very rapidly at the moment, so hopefully you will understand if some news is occasionally out of date by the time you read the Update.
The latest news
It hardly seems credible that the Budget speech was delivered little more than a week ago. It already seems like old news and on Tuesday, Chancellor Rishi Sunak unveiled a raft of new measures designed to support businesses and the economy as he repeated his promise of doing ‘whatever it takes’ to get the country through this crisis.
As we have mentioned above, the Bank of England has cut interest rates to unprecedented low levels, and backed this up by buying £200bn of government and corporate bonds, what used to be termed ‘quantitative easing.’ It also looks like the Chancellor will announce further measures, almost certainly designed to support wages, on Friday afternoon.
The week has also seen similar moves in the US, with the package there amounting to $1tn (£870bn at current exchange rates). The European Central Bank has announced a €750bn (£700bn) set of proposals.
Domestically, schools will largely close from today and, if you really want an indication of how serious the situation is, the Church of England has said it will limit weddings to just five people.
The stock markets
It seems slightly ironic, given the source of the global pandemic, that the stock market which has fallen least this year is China’s Shanghai Composite index. As of yesterday, it was down by just 5% in March and by 11% for the year as a whole.
Most major markets have seen falls of between 20% and 30% this month. The UK’s FTSE-100 index – at 5,080 – is down by 23% in March and 33% for the year as a whole. The US Dow Jones index is similarly down by 22% and 30% respectively and closed Wednesday at 19,899. Germany’s DAX index, which closed on Wednesday at 8,450, has suffered a bigger fall, down 29% this month and 36% since the beginning of the year.
The biggest falls have been seen in the more volatile, emerging markets. The ECB will clearly be worried about both Greece and Italy, with the Greek market down by 47% this year and Italy, the centre of the outbreak outside China, down by 36%.
It is also perhaps worth commenting on the pound, with newspaper headlines saying Pound crashes to 1980s levels. The pound is down by 10% against the dollar so far this month, and by 13% for the year as a whole: it closed on Wednesday at $1.1585.
Many clients will be asking an obvious question. ‘Should I cash in now to prevent further losses, or should I hold on in the hope that markets recover?’
The answer to that question will depend on every client’s individual circumstances. The purpose of this Update is not to offer financial planning advice, but to provide information and reassurance. To echo the Chancellor’s words on Tuesday afternoon, we will do ‘whatever it takes’, and a key part of that is being here to answer your questions and, if necessary, to look at your financial planning in the light of the changing circumstances.
Another reasonable question is, ‘how long will markets take to recover?’ Very clearly, we’re in uncharted waters. All economies will technically go into recession and, whatever action the Government takes, some previously profitable companies will go out of business. There is, however, an interesting article in the Economist this morning suggesting that some economies – it cites Singapore and South Korea as examples – could start to recover as early as the second half of this year.
The short answer is that we do not know. But we’re certain that when this is over, as it will be, there will be a renewed spirit of optimism and a determination to rebuild as quickly as possible.
In the interim we will keep our promise to update you every week. Many of our clients have been with us for a very long time. We have always kept them updated and we will not let anything, not even a global pandemic, interrupt that.