Multi-asset investment thinking from the Quilter Investors team.

Weekly investment news and commentary.

In this week’s edition:


Central banks and policymakers circle the wagons

US $100 bills

On Sunday (15 March) the US Federal Reserve (Fed) brought forward the rate cut most observers were expecting to see at its Wednesday meeting this week by announcing a further 1% cut in US interest rates to virtually zero (0-0.25%).

It also assured markets that it expects to maintain this target range until it’s confident the economy has “weathered recent events”. The move was accompanied by promises to buy $700bn in US bond assets, effectively restarting the US quantitative easing (QE) programme.

Elsewhere, the Fed in concert with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank announced co-ordinated action to help ease the burden on global funding markets and support the supply of credit to households and businesses.

Despite these actions markets fell again on Monday (16 March), with US equity indices falling around 12% after President Donald Trump acknowledged the US economy may be heading for a recession.

Governments step up fiscal response
With monetary policy struggling to reassure global markets, governments have been prompted into introducing various forms
of fiscal easing. This includes state loans or credit guarantees for companies from Germany, France and Italy. Meanwhile, the US is planning a third coronavirus relief bill that may contain further economic stimulus.

The UK also increased its fiscal support for businesses and households, unveiling a package including £330bn in loans and £20bn in other aid.

Recession now on the horizon

People walking with umbrellas in the rainAccording to Quilter Investors portfolio manager Stuart Clark, we can expect to see four distinct phases to how markets react to the coronavirus outbreak.

“We’ve already seen phase I, namely shock and supply chain disruption,” he says.

“Markets are now coping with phase II, which includes financial disruptions, liquidity fears, stress selling and a lack of funding.

“Phase III is when markets reach their nadir. This will be dictated by the spread of the disease and it’s unlikely that any monetary actions taken by authorities can prevent this,” he says, “hopefully, this is fast approaching.

“Phase IV, namely a recovery in markets, can’t happen until all the bad news has been priced-in but we’ve already seen how quickly this can happen. China is now the top performing stock market year to date, after being the first major virus casualty.”


Keeping your head: the seven golden rules of investing

On Thursday (12 Mar) and Monday
(16 Mar), stock markets suffered their two biggest one-day drops since the ‘Black Monday’ crash in 1987. Even so, long-term investors know that markets invariably recover from the kind of short-term disruptions caused by the covid-19 outbreak and reward those who can ride out the bumps along the way.

With this in mind, it’s worth remembering our top seven principles for keeping your head when all about you are losing theirs:

1 Get advice; 2 Make an investment plan and stick to it; 3 Invest as soon as possible; 4 Don’t just invest in cash; 5 Diversify your investments; 6 Invest for the long term; 7 Stay invested.

Remember: Investing with a long-term outlook and with long-term goals is the best way to reduce the impact of stock market fluctuations and to see out periods of volatility.


History lessons

Recent research from JPMorgan illustrates the extent to which markets reacted to previous pandemic outbreaks and underlines the strong gains that had materialised just over three months after the ‘peak’ in bad news.

According to strategists at JPMorgan, previous episodes of viral outbreaks didn’t lead to extended periods of equity selling and, in fact, became buying opportunities within weeks with local indices rising 23% on average in the three months after the ‘peak’ in the health scare.

Their analysis covered previous outbreaks such as SARS in 2003, swine flu in 2009, ebola in 2014 and zika in 2016. According to their data, with the exception of ebola, global interest in each disease – as measured by Bloomberg mentions – peaked within around a month.

Only SARS had a significant short-term impact on regional indices with the MSCI China and Hong Kong indices initially falling close to 9%.


The original article is available here Quilter Investors – Between the lines week 12



Past performance is not a guide to future performance and may not be repeated. Investment involves risk. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Because of this, an investor is not certain to make a profit on an investment and may lose money. Exchange rates may cause the value of overseas investments to rise or fall.