Bearing in mind ongoing market uncertainty we thought you may like to receive our latest opinion and views.
The Coronavirus continues to dominate global affairs although most recently we have seen both China and South Korea make substantial progress in controlling new infections. We are monitoring the Chinese situation closely to see whether the loosening of lockdown measures and a return to work results in a reacceleration in economic activity. The early signs are promising with the most recent economic numbers released being above expectations.
The harsh containment measures applied in Europe also appear to be bearing fruit as the increase of confirmed infections is visibly slowing. However, across the Atlantic, the US has become the epicentre of the virus with almost 600,000 cases and over 20,000 deaths at the time of writing.
We are still awaiting a raft of corporate results and management teams and city analysts will have to decipher what the pandemic will mean for earnings forecasts. Some companies have already delayed releasing their earnings and ongoing uncertainty is still likely to impact market volatility. There has also been a profound effect on unemployment as jobless claims in the US now exceed 16 million as shutdowns from the pandemic widen.
On a more positive note, OPEC and their allies announced over the weekend that they agreed on the largest oil production cut in history following days of high level yet difficult discussions. Despite the record size of the cut, some fear it is still not large enough to combat the drop in demand. Oil has still fallen more than 50% since its January peak.
Following sharp moves in markets, some portfolios have been pushed out of line with their strategic asset allocation. We believe that the focus will eventually shift from how big the fall in GDP is to how quickly the economy will recover and that sentiment will entice investors back in to the market. Therefore, the falls may provide an opportunity to rebalance portfolios and selectively add to equities where there is an opportunity to purchase risk assets at much lower valuations. Nevertheless, we cannot ignore that conditions may get worse in the short term although historic data suggests that markets tend to correct, and a normal upbeat trend will return.
As always, should you have any questions regarding your portfolio, please do not hesitate to contact us.