In another unprecedented week for global markets, we have now entered a new phase of the virus response in the UK. The ultimate toll that this will have on the domestic economy is almost impossible to quantify at this stage. As we are writing this, the UK chancellor is preparing a stimulus package in the UK economy. Planned intervention by both the UK and other Western governments could see a response from governments that haven’t been seen in terms of its scale, since the great depression of the 1930’s.
Following recent discussions internally at Greenfields and a lot of research we decided to act last week with a number of our clients’ portfolios, where appropriate. It is very much our fear currently that the bottom is not yet in and investments could continue to freefall for some time yet. One of the more underappreciated developments concerning China’s efforts to slow the growth in virus infections there to zero is that the harsh measures implemented caused tremendous economic, psychological, and emotional damage on the country. Even now, there is concern the virus has only been suppressed, and not eliminated, which is leading to reluctance to fully restart the economy. And even when that happens, China may be left with enough long-term damage that will make returning to a pre-virus economy tough to recapture. Lasting damage to supply chains will slowly begin to cripple economies around the world.
Markets are currently looking for a reason to shrug COVID-19 off. They have become accustomed over the last decade to central banks stepping in whenever the stock markets begin to dwindle. In a week where the Federal Reserve produced an extra half a trillion $ worth of liquidity to the market and announced emergency rates cuts to zero, you would think that the markets would have responded positively. However, the S&P index fell nearly 12% on Monday, its worst day since 1987. It would appear that the quick fiscal stimulus measures that have been so profitable for markets over the last decade have little to no effect here. Taken together, bankers, regulators and investors are painting a troubling picture for markets and the global economy: If banks, companies and consumers panic, they can set off a chain of retrenchment that spirals into a bigger funding crunch – and ultimately a deep recession.
An emphasis must now be placed on countries demonstrating that the western world is dealing with this virus before markets stop falling. Currently, none of the western countries are anywhere near prepared enough, as we highlighted in previous posts. We will continue to monitor the ongoing financial situation, and will be in touch with clients with any recommendations that we feel are necessary. We hope all of our clients, their families and wider friends stay healthy throughout this difficult period.
Written by Greenfields Financial Management Ltd.
This article is for information only and should not be treated as advice. No action should be taken in respect of this article without independent financial advice. This information represents the opinion of Greenfields Financial Management Ltd. only.