An Update on COVID-19 and Market Commentary

The focus has now switched away from the “R” rate and death rate from The “Chinese Virus” to how we exit the lockdown to get the global economy working again to determine the shape of the recovery.

China was where it all started and they have now opened up schools and restaurants and life is beginning to return to a new normal with their economic recovery ahead of the rest of the world.  There are stories of new infections in some Chinese cities, but these are very limited (if we believe the statistics) and have not led to any further lock down measures.

In Europe Italy was the hardest hit, until the UK overtook them, and was first into the pandemic and the first to start to release from lockdown. It is now all about balancing the ongoing threat of the virus and a possible second wave versus keeping the economy alive and able to recover.  The debate continues as to whether the recovery will be V shaped or L shaped or W shaped.  V shaped implies a very sharp drop followed by a very quick recovery and the general consensus amongst investment analysts is now that this will not happen.  L shaped means that the economy never does completely recover and that is therefore the worst case scenario. W shaped means that the initial recovery is then offset by another downturn (second wave) and then a subsequent recovery in the form of a classic bear market. U shaped is just V but spread out over a longer period. Within all this there are sectors that will perform strongly, such as tech stocks, healthcare, pharmaceuticals etc.

Government and Central Bank support has been extraordinary, but will have to be paid for at some stage. In the UK the furloughing scheme has now been extended to the end of October and again it is a balance between being not generous enough which would result in unemployment or being too generous and creating unnecessary indebtedness. Pay back will come from taxation or by allowing inflation to erode some of this debt and in both cases is likely to result in return to austerity despite Government remarks to the contrary.

Emerging Markets need to ease monetary and fiscal policy but are struggling to do so and therefore their recovery will be slower. The Bank of England forecast a fall in house prices of up to 16% as a result of the economic slowdown, but we have yet to see that as there haven’t been any house sales!

The long term solution must be to produce a vaccine, but there has never been a successful vaccine produced for a coronavirus. There is an enormous amount of money being poured into research so maybe it might work this time.

Markets are forward thinking and have come up a long way from recent lows, even if the economic position hasn’t improved to the same extent, but there is still Brexit to contend with. Recovery will happen and we will learn to live with the virus. In the medium term therefore wealth should be fully invested in a balanced portfolio of global stocks and shares, property and cash in line with your attitude to investment risk, and now could be a very good time to commit additional funds to market.

As always, if you would like to speak to us about any of the above or would like further help or advice, then please do not hesitate to get in touch with your usual Lycetts contact.

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