Market commentary

21 April 2020

Outlook for economic growth and markets by Chris Darbyshire, Chief Investment Officer, Walker Crips Investment Management Limited

Quarter 1 2020

This quarter witnessed the unfolding global tragedy of the coronavirus and the heroic fightback of the workers in the health service. Economies have proved to be uniquely vulnerable to this threat as we find ourselves forced to curtail our usual activities in order to help the health service save lives. It’s fortunate that the memory of the Credit Crunch is still fresh because the extraordinary actions taken then, provided a roadmap for the actions to be taken now. Governments and central banks have not disappointed, with the programmes so far announced dwarfing anything undertaken in peacetime before. Moreover, the pace with which each nation’s institutions have responded is also a first. As a result, there is undoubtedly light at the end of the tunnel, both medically and economically. The only question is when we will emerge from the gloom.

This was a quarter to forget for the world’s major stock markets, with declines approaching 30% being the norm. Like the virus, the uniquely rapid onset of these declines has been a defining factor. While absorbing the risk created by the coronavirus, capital markets were then blindsided by the sudden onset of a price war in the oil industry. This turned a correction into a rout. Over time, the cheaper cost of fuel will act as a much-needed stimulus for consumers, but the initial reaction of markets was to double their declines, perhaps exacerbated by forced sellers from among the oil-producing nations. Markets were twisted out of recognisable shape as even traditional safe havens, such as governments bonds and gold, sold off and investors flocked to the US dollar. This was a true liquidity crisis, and the only sanctuary was cash; preferably “King Dollar”.

However, this moment may have marked peak panic. Since then, the US central bank has put radical, and very large, purchasing programmes in place to support liquidity in US government and corporate bond markets. It has also improvised mechanisms to improve access to US dollars worldwide. This does not solve the economic problems ahead of us, but it does address the fear that capital markets themselves were ceasing to function. It’s one less thing to worry about.

Meanwhile, the economic damage has yet to really become apparent, and it will make the headlines. But it will also be mitigated by government programmes, especially among those companies that are worst-affected. For others, the impact will be survivable; some will not be affected at all and some companies will even grow as a result of the changes brought about by the crisis. We think it’s still prudent to avoid those industries that are most affected, and we continue to explore the growing list of companies that are in relatively good positions.

There’s a long way to go before the epidemic passes sufficiently for our lives to return to normal, but hopefully, the speed of the market decline can also be a positive for recovery if it means that a great deal of risk has already been assimilated. Indeed, we can be cautiously optimistic that, at least in terms of capital markets, the eye of the hurricane has already passed.

Important information

The value of any investment and the income arising from it is not guaranteed and can fall as well as rise, so that you may not get back the amount you originally invested. 

The publication is intended to be Walker Crips Investment Management’s own commentary on markets. It is not investment research and should not be construed as an offer or solicitation to buy, sell or trade in any of the investments, sectors or asset classes mentioned. Past performance is not a reliable indicator of future results. Nothing in this document constitutes advice to undertake a transaction, if you require professional advice you should contact your financial adviser or your usual contact at Walker Crips. 

Walker Crips Investment Management Limited is authorised and regulated by the Financial Conduct Authority and is a member of the London Stock Exchange. Registered office: Old Change House, 128 Queen Victoria Street, London, EC4V 4BJ. Registered in England number 4774117.