Cowgills Wealth Investment Views
Private investors have experienced historically dramatic swings in their fortunes as a result of the COVID-19 Pandemic. It has been the unprecedented speed of large equity market moves, both down and up, which caused understandable concerns for investors. The FTSE-100 Index dropped 35% over 46 trading days, and the MSCI All Country World Index dropped 32% over 28 trading days. The markets then reversed course at even greater speed, with the FTSE-100 gaining 17% in the 13 trading days to 9 April and the MSCI ACWI advancing 22% over the same period.
The combined speed and magnitude of these rallies has prompted our clients to ask whether the bear market is now behind us or could we see a second wave of equity market declines?
To answer those questions we are of the view that three interrelated issues must be clarified
- First, is any equity market appreciation from the March lows warranted?
We believe some market recovery was inevitable in light of the preliminary indications of a slowdown in the pace of COVID-19 infections and fatalities. In addition there has been a swift supportive reaction of Worldwide governmental financial stimulus, for example the UK Government have rolled out Job Protection schemes, Coronavirus Business Interruption Loan Scheme and Central Bank monetary measures including interest rate reductions, Credit Market liquidity schemes and extension to Quantitative easing.
- Second, is the speed of the market rallies warranted?
Over the last several months, everything has been moving at warp speed, starting with the spread of the pandemic from Wuhan to the rest of China and beyond. Global equity market falls occurred at the fastest pace since WWII. Governments in the UK and worldwide have responded with fiscal and monetary policy measures at record speed. In such an environment, the seemingly warp speed of this rally seems in line.
- Third, is the magnitude of this rally warranted?
Referring back to the first point, we think a rally was warranted, but of course it is impossible to know if a 17% recovery in the FTSE-100 and a 22% recovery in the MSCI ACWI adequately reflects the remaining uncertainties with respect to therapies and vaccines, possible new virus hotspots in the UK, US, Europe and elsewhere, the risky paths to reopening economies and occurrences of second virus waves as economic activity picks up.
Whilst it is impossible to call the bottom of any market, investor’s natural concern is whether there may be a re-visit to the March lows. We believe that may occur if actual data on rates of infection transmissions, death rates and potential second waves are materially worse than current expectations. The very latest data indicates an improving picture; allied to forceful government interventions this would point to an improving investment landscape in the second half of 2020 albeit with increased levels of market volatility compared to the bull market of the last decade.
The value of investments and income from them may go down. You may not get back the original amount invested.