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Global Update – Written on the 25th March 2020

The term ‘unprecedented’ has never been so widely used both in terms of the wider media and when describing global market movements in recent weeks. But it perfectly summarises the situation that we are currently in – what seemed unthinkable just 4 weeks ago in terms of western governments intervening in economies has now seen replicated action across the globe. Rishi Sunak’s announcement that the UK government will pay 80% of wages has coincided with a similar announcement in Germany (which would indicate that the purse strings will be let loose on the rest of Europe). The U.S on Tuesday agreed a $1.8 Trillion stimulus package to bail out industries that have been affected by the COVID 19 crisis and stock markets soared on the back of this. We believe, however, that this will be a ‘dead cat bounce’ or ‘relief rally’; a short-lived bounce in share prices before we continue to fall.

There are a plethora of reasons for us to take this viewpoint. First, China’s return to work could see a rise in infection rates again, as more people come back into contact with each other. If this was to occur, markets will rationalise that the battle against COVID 19 is more long term than a 12-week incubation period. Therefore, expect a re-pricing of equities on the back of this news, if it occurs.

Second, President Trump’s malaise towards the virus. Although the stimulus mentioned above has buoyed markets and seems to indicate the President taking the issue seriously, his other rhetoric contradicts this. On Tuesday he spied “light at the end of the tunnel” and envisioned packed church pews at Easter as America breaks free of stay-at-home orders and marks the return of its “raring to go” economy. “I thought it was a beautiful time. A beautiful timeline,” the President said Tuesday, making clear that his target date to open the nation by April 12 — less than three weeks away — was driven by sentiment and symbolism, not medical data on the virus’s fast-tightening grip on the nation. This response to the virus, if pursued, will only see infection rates exponentially increasing.

Third, markets still cannot quantify the effects of the virus on the global economy. What is the true effect on companies? How close are we to getting a vaccine? We still need medical progress, alongside government policy, for market rallies to be sustained. At the very least, effective testing needs to be carried out across all of the Western world, but this still seems some way off. As this virus appears to be so significantly contagious, once the strict social rules are lifted, infection rates could soar. Remember, the current policy in the UK is to flatten the curve, not eliminate the virus and the measures put in place are considered extreme! Ultimately, a vaccine is needed and it is needed quickly.

We sent out correspondence throughout the end of last week and this week to change our client’s portfolios, to move to a far safer asset allocation. Although we were reluctant to do this, we have made this decision based on the above assertions. The nature of our work is holistic financial planning, and a key for this to be able to work effectively is stability. The portfolios that we have recommended provide this in such uncertain times. We, of course, will continue to monitor the ongoing situation and will be writing to clients with our recommendations when we feel the situation is clearer.

Please note that Greenfields will be operating with limited staff in office over the coming weeks. If you have any queries or questions please email them to ian@greenfields.biz and we will aim to assist you.

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.