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Global Update – Written on the 1st April 2020

This week has seen a strange malaise take hold across both public life and global markets, as populations become accustomed to a new way of living. The next two to three weeks is seen to be absolutely critical in the response against this virus. The key question is whether the lock-down policies pursued in Europe are starting to work. But the key limitation to measuring this is a lack of testing (a point that is especially prevalent in a UK context due to the apparent lack of testing compared to other countries). The more people get tested the more reported cases there will be. This should produce more accurate estimates of the expected peak, but it may mean that the peak itself takes longer to reach.

For the first time in months, the Chinese province of Hubei, where the coronavirus first emerged, is getting attention for a good reason. COVID-19 cases there have dropped to practically zero, and last week authorities lifted travel restrictions in and out of the province, some 60 days after much of it was dramatically locked down. Now scientists — and the rest of the world — are watching closely to see whether easing the intense measures to keep people apart results in an emergence of new cases. An early analysis suggests that, so far, these fears have not come to pass. How things unfold in Hubei — and across China — will be relevant to many European nations and some US states that have restricted travel inside their borders, closed most businesses, schools and universities and told people to stay at home, in an attempt to halt the pathogen’s spread. Modelling of the UK outbreak suggests that the country’s social distancing measures, including school and university closures, might be needed for large parts of the next two years to keep the proportion of people with severe COVID-19 infections in hospital at manageable levels (a link to the imperial college report has been included at the end of this piece).

As this piece is being written there are a variety of different economic indicators that are emerging showing the effects that the virus is having on the global economy. Sharp declines in manufacturing indexes worldwide has coincided with the weekly jobless claims in the U.S jumping by around 3 million (that is quadruple the all-time high) almost overnight. There is a fear that the real figure is even higher as the administrations there have not even processed anywhere near all of the claims put in. As President Trump has now started to concede, with his rhetoric decisively changing in the last week, there will be lasting economic effects from this virus. The public health response has been more fragmented and delayed in the US than anywhere else. Thus, the disruption to the economy is going to be a real shock and this may still find its way into significantly lower stock prices.

The mantra of the Greenfields team is still one of caution, particularly on the evidence that is presenting itself above. We are wary of the significant rises that occurred in the markets last week but as mentioned in a previous post, the sustainability of this was and still is incredibly questionable. Many of history’s great crashes have exhibited head-fake rallies that offered investors a false sense of hope that proved to be fleeting. In the context of a world where a virus that we can only currently try to contain and not overcome; we appear to have further to fall. But, in truth, this is almost impossible to predict. We will continue to monitor the situation and will be in contact with clients with any recommendations that we feel are appropriate.

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.