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The emotions that arise when investing

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The emotions that arise when investing

Thursday, August 13th, 2020

Emotions are important. We should listen to them… most of the time at least. However, investing is one case when it’s best to let rational thought take priority over your emotions. By all means, listen to your emotions, but don’t be led by them.

Here’s a slightly shocking fact: In 2018, the S&P 500 generated an average return of 9.85% annually. However, research by Dalbar found that the average investor earned roughly half of that: 5.19%.

 Why? Humans are emotional creatures and investing is an emotional experience, therefore investors are tempted to make rash decisions like rapidly selling during a market downturn. 

When investing, a patient, logical approach is usually the most effective over the years. This means prioritising long-term investments over the impulse to buy and sell based on your emotions or short-term goals. 

We’ll admit that it’s hard to avoid becoming entangled in media hype or fear, something that can lead you to buying at the peak and selling at the bottom of the market, so you need to be self-aware enough to recognise when this is happening.

 

The cycle of investor emotions

It’s common for investors’ emotions to move in something of a cycle, similar to the one shown in the diagram below. The point of maximum financial risk lies at the top of the market curve. Here, there is the potential to make a decision motivated by short term gains, when it’s likely that the best gains have already passed.

Investors who wait until this point are often at risk of ploughing their cash into a market that might soon crash.

On the other hand, during times of rising market volatility, investors should remember the importance of looking beyond short-term market fluctuations and remember that although markets take time to recover, they usually do. If you sell during a downturn due to fear, you risk selling at the point where markets are lowest. 

You are essentially at much greater risk of being harmed by the adverse effects of ‘bad timing’ if you let your emotions get the better of you.

A better perspective

Resisting your emotional impulses isn’t easy while in the grip of a savage bear market or a raging bull. Because of the risk of long term goals being overtaken by emotionally motivated decisions, a mindset shift is necessary.

You should try to avoid thinking of your investments as immediate assets and stop dwelling on the daily fluctuations to your net worth. Rather than thinking “I lost £15,000 today” on the day of a large market fall, try to think in terms of your averages and your long term financial goals. You might have lost £15,000 on a single, awful day, such as some we saw in the ‘Covid Crash’ earlier this year. However, your portfolio might have gained £300,000 in overall value.

A balanced, long term investment strategy generally has a couple of features: 

Firstly, it takes into account that stock markets aren’t rational. You can’t rely on predicting the future of stock markets – billions have been lost on global markets to testify this. 

When looking back at stocks, it’s easy to fall into the trap of thinking “I wish I had invested at this time”. Unfortunately, it’s impossible to actually work out when the perfect time to buy or sell is when it’s actually happening. 

For instance, when markets fall, they often have small rises that form part of an overall downward slope. An investor might think that they are being smart by investing heavily in one of these ‘mini-troughs’, following the much lauded ‘buy low and sell high’ investment strategy. However, there’s no way of knowing for certain that this is actually the lowest point on the stock market. It might just be a momentary trough as part of a much steeper decline.

Another approach could be to consider ‘drip-feeding’ your money into investments, a strategy known as Pound Cost Averaging. 

Secondly, stronger investment portfolios tend to be diversified. There’s that old saying about not putting your eggs in one basket. Investing all your money in one place makes you far more financially vulnerable if those stocks crash. 

A stronger investment strategy would spread your money through different asset classes and different assets within each asset class. 

Whatever investment strategy you use, it’s best to try to gain a bit of emotional distance from your investments. Understanding what emotions you’re likely to be feeling is a good way to enable you to make effective decisions, but don’t let these emotions rule you. Please get in touch if you have any questions about this article.

 

The world is in recession. Why is the stock market rising?

Thursday, August 13th, 2020

Current World Bank forecasts indicate that the Covid19 recession will be the deepest since WWII and the Treasury’s forecaster has suggested that it could take until the end of 2022 for the British economy to return to its pre-coronavirus peak.

However, global stock markets seem to tell a more positive story. Markets are rallying across the world and have been so doing since their mid-March trough, with the US stock indexes leading the charge. Today, some markets – like the S&P 500 – are close to fully erasing their recent losses.

February and March were difficult months for stock market investors – with the sharp declines the markets were showing and wider economic chaos, sleepless nights were aplenty. Since then the stock markets have generally been positive. Many investors’ portfolios are close to their pre-coronavirus levels.

The divergence between economic news and stock market performance

While stock markets are closely related to the economy, they are not the economy. 

Stock investors look forward, beyond present conditions, into the future. And at the moment they are taking an optimistic view.

There are several reasons for this. 

Firstly, governments have responded with large economic stimulus packages. In Britain, we have had the furlough scheme, loans to support businesses and support for the self-employed. More recently, Rishi Sunak announced a further support package worth up to £30bn, which included measures to protect jobs, help younger workers and encourage spending.

As long as governments continue to support the economy, many investors will be willing to look beyond adverse economic headlines. 

Secondly, the medical news around coronavirus is a bit of a convoluted story, but one which does show promising signs for investors.

While the virus seems to be continuing to wreak havoc around the world with more cases and fatalities each day, the news appears to be reasonably positive on vaccine development and other treatments. If a vaccine is available for mass distribution in early 2021, life may return to normal sooner than expected. 

However, it’s not a foregone conclusion that the stock market surge will last. 

A second wave of coronavirus could require countries to implement stricter social distancing measures that would further dampen consumer spending. And there’s a chance that global finance ministers will not be able to extend the kind of economic support measures offered during the initial lockdown. 

Events like these would likely damage investor confidence in the future, causing stock markets to fall once again.  However, given the fact that many major economies are making a ‘V-shaped’ recovery,  we’d say the prospectus for investors is positive.

August Market Commentary

Thursday, August 6th, 2020

Introduction 

If there was one word that characterised July, it was tension. Tension between Beijing and Hong Kong, tension between China and the US, and tension between China and the UK over Huawei. 

The UK made a citizenship offer to up to 3m Hong Kong residents and duly suspended its extradition treaty with Hong Kong. The US indicted two Chinese hackers for spying and President Trump is expected to take action against Chinese software, including the hugely popular TikTok, ‘within days.’ 

In the UK, July brought us Chancellor Rishi Sunak’s Summer Statement as he continued the fight against Covid-19. We report below on a sharp drop in US GDP in the second quarter. The UK figures will also make for grim reading when they are released and we can surely expect another round of stimulus measures when the Chancellor unveils his Autumn Budget. 

The Chairman of Microsoft said that the world faces a “staggering jobs challenge” with up to 250m set to lose their jobs this year. If Covid-19 has done one thing it is to accelerate economic changes we have long been writing about – another headache for Rishi Sunak as the furlough scheme in the UK starts to wind down. 

World stock markets had a mixed month in July: there were some remarkably good performances, although the UK’s FTSE index had a poor month. With Covid-19 cases in the US continuing to rise, the dollar suffered its worst month for more than a decade. 

As always, let us look at the details…

UK 

On 8th July – almost four months to the day after his March Budget speech – Chancellor Rishi Sunak delivered his Summer Statement. 

The Chancellor announced a “£30bn plan for jobs.” The country would, he said, be defined “not by the crisis, but by how we respond to the crisis.” 

As the Chancellor waits to see how the economy begins to recover before he unveils his Autumn Budget, the Summer Statement will act as something of a holding measure.

In the meantime, he will have plenty to ponder on. With the furlough scheme now gradually coming to an end, the job losses continue to mount, with 12,000 jobs going in two days at the beginning of the month and estimates at the end of July suggesting that lockdown has cost pubs and restaurants £30bn of turnover. 

More worrying, perhaps, are suggestions that many firms which might otherwise have folded have been artificially kept afloat by loans and grants from the government. The rate of insolvencies has slowed since March, but the Institute of Fiscal Studies is suggesting that many of these ‘zombie companies’ will struggle to repay the new debts they have incurred. 

Car production in the UK slumped to its lowest levels since 1954 and although consumer confidence edged up from its record low, confidence among small firms declined sharply. More than a fifth of the UK’s small firms expect their performance to be “much worse” over the next three months, with 75% of firms reporting that their profits fell in the last three months, up 33% on the same quarter last year. 

Optimistically, the Bank of England is now suggesting that an “uneven” recovery has begun. There seems little doubt now that the supposed ‘V-shaped recovery’ will not happen, and that some sectors of the UK economy will continue to struggle for some time. The latest research is suggesting that shareholder payments via dividends could take six years to recover. 

As we reported above, there were tensions between the UK and China over Huawei’s involvement in the country’s 5G network, and this led to inevitable counter charges from China and threats of reprisals against UK companies. 

With all of this news, it was hardly surprising that the UK’s FTSE-100 index of leading shares fell in the month. It was the worst performing of all the markets on which we report, dropping 4% in July to end the month at 5,898. 

With the dollar having its worst month for ten years, the pound rose sharply against it and ended the month up 6%, trading at $1.3098. 

Brexit & Trade Deals 

You may be familiar with the Sherlock Holmes story ‘Silver Blaze’ and Holmes’ famous quote that ‘the curious incident was that the dog did nothing in the night.’ 

July was virtually a ‘curious incident’ month for Brexit and any subsequent trade deal with the EU. With all attention still focused on Covid-19 and several of the leading participants due to go on holiday, August may well follow suit. 

There are now five months to go until the UK leaves the European Union, and it is looking increasingly likely that it will be without any formal deal. In the middle of the month, the Guido Fawkes political blog reported that both major trade deals – with the EU and the US – are ‘expected to miss their deadlines and not be concluded by the end of the year.’ 

Europe 

On 17th July, Europe’s leaders met to try and thrash out a post-Covid-19 recovery deal. Hopes prior to the meeting were, apparently, ‘not high.’ 

The talks went into a fourth day but – after Europe’s longest meeting since 2000 – the objections of the ‘frugal four’ (the Netherlands, Austria, Sweden and Denmark) were overcome and a deal was eventually reached. 

Some hailed it as a victory for closer European integration but it is fair to say that there were also plenty of sceptical voices arguing that the North/South rift in the EU had widened and that the extra spending commitment – estimated at €1.8tn (£1.6tn) over the next seven years – was unsustainable given the expected contraction in the European economy.

We have written above about the decline in the UK car industry: sadly that is a pattern being repeated right across Europe, with German car production falling by 44% in the first five months of the year and 100,000 jobs thought to be at risk. 

The German economy shrank at its fastest rate on record in the second quarter, declining by 10.1% between April and June – the sharpest fall since Germany began producing quarterly figures in 1970. 

On the stock markets, it was a very quiet month for the German DAX index which rose just two points in the month to close June at 12,313. The French market fared less well, falling by 3% to end the month at 4,784. 

US 

The month started well in the US – figures showed record jobs growth in June as firms started re-hiring and 4.8m jobs were added – but all the news in the month was overshadowed by the second quarter figures. 

The US economy suffered its worst ever fall in the April to June quarter, with GDP falling a historic 32.9%. You could put a positive spin on the figures by arguing that the consensus among economists had been for a fall of 34.7%, but the simple fact is that neither the Great Depression nor any other slump in the past 200 years has seen such a sharp contraction in the US economy. 

The figures, “just highlight how deep and dark the hole is that the economy cratered into,” said Mark Zandi, chief economist at Moody’s Analytics. 

At the end of the month, Republicans in the Senate proposed spending a further $1tn (£769bn) to help fix the ‘hole,’ with proposals including $100bn (£77bn) for schools and a stimulus payment of $1,200 (£923) to most Americans. The US has already spent more than $2.4tn (£1.85tn) in virus relief measures. 

The Federal Reserve duly repeated its vow to protect the US economy, but admitted that the long term health of the economy was bound up with the long term path of Covid-19. This continued to suppress domestic demand through July as individual states imposed renewed lockdown measures. 

In other news, Tesla overtook Toyota to become the world’s most valuable car maker as its shares rose again. The US stock market duly took its lead from Tesla rather than the bad economic news. The Dow Jones index was up 2% in July to 26,428 while the more broadly based S&P500 index rose 6% to 3,271. 

Far East 

July in the Far East – leaving aside the tensions over Hong Kong – was, perhaps, a tale of two companies and the impact lockdown had on them. 

At the end of the month, Japanese car maker Nissan warned of a record loss. The company said that the virus had hindered its ‘turnaround’ efforts, with sales slumping by 48% in the April to June period. It estimated the loss for the year at £3.5bn, with its shares unsurprisingly falling 10%. 

It was exactly the opposite story in South Korea as Samsung’s sales soared on the demand that has been created by working from home and home schooling. The world’s largest maker of smartphones said second quarter profits were up 23% on last year, with the results helped by strong demand for computer chips. 

If the news in July was bad for Nissan, it was also bad for the wider Japanese economy, which went into recession. Household spending in May was 16.2% down on the same period in 2019, the sharpest rate of decline since comparable data began in 2001. 

Despite the good news from Samsung, the South Korean economy was also in recession, with exports – which account for 40% of the economy – at their lowest level since 1963. 

We have already discussed the tensions surrounding China: those don’t appear to be reflected in the Shanghai Composite index which rose 11% in the month to close July at 3,310. The South Korean market also defied the bad news, climbing 7% to 2,249. The Hong Kong market posted a more modest 1% rise, closing at 24,595 while Japan’s Nikkei Dow index was down 3% to 21,710. 

Emerging Markets 

It was a quiet month for news in the emerging markets we cover in the market commentary. The most noteworthy event occurred in Russia, where Vladimir Putin effectively became ‘President for Life.’ 

In a referendum – held over seven days because of Covid-19 – nearly 80% of voters apparently backed an amendment to the constitution which will allow Mr Putin to run for two more terms as President. He had been due to stand down in 2024, but will now effectively remain President until 2036, when he will be 83. 

July was a good month for Mr Putin and a very good month for the three major emerging markets on which we report. The Indian stock market rose 8% to 37,606 and Brazil’s market was up by the same percentage to 102,912. The Russian stock market rose 6% in the month, ending July at 2,912. 

And finally 

There cannot be anyone reading the market commentary who has not now heard the term ‘social distancing’ – or noticed its inevitable impact on sporting events. 

One such event to suffer from a lack of spectators was July’s hot dog eating contest in the US. Every year thousands of people flock to Coney Island for this great sporting contest. They pack the beach in their thousands, cheering on the competitors. 

Until this year…

This year, of course, the hot dog eating contest had to be socially distanced and was duly held indoors. The good news is, despite the lack of support, records were broken in both the men’s and women’s categories. Winning the men’s contest for the 13th time, Californian Joey “Jaws” Chestnut swallowed an impressive 75 hot dogs in ten minutes. Miki Sudo, from Connecticut, won the women’s title, downing 48½ hot dogs. 

Speaking after the contest, 36 year old Mr Chestnut said, “One of the best things about this contest is the energy the audience brings. There’s been years when I don’t feel my best and the audience pushes me.” 

Also clearly not feeling their best – although possibly not from eating 75  hot dogs – were staff at the Met Office, who mistook a huge cloud of flying ants for rain. In a tweet, the confused Met Office wrote, “It’s not raining in London, Kent or Sussex – but our radar says otherwise.” 

Finally, figures were released during July showing that we spent £40.6bn trying to cheer ourselves up during lockdown, with consumers spending an average £771 each. As you’d expect, takeaway food and alcohol were high on the list, but Barclaycard also revealed that consumers bought an inflatable pub, a penny farthing and an antique diving suit. 

With the weatherman telling you it’s going to be raining flying ants, who wouldn’t want to climb into an antique diving suit? 

What is the value of advice?

Monday, July 13th, 2020

You’re not going to be surprised that, as advisers, our firm belief is that an advised client will get a better financial outcome than a non-advised client. How to prove, though, that we’re not just biased? What is the actual value of that advice? How can it be quantified?   

Most importantly, the value of advice is not simply tied to fund picking or performance.

A good example of this was when the FTSE 100 fell by over 26% in early March due to panic over the coronavirus outbreak and some advisers chose to move their clients’ investments out of equities into assets, traditionally viewed as ‘safe havens’. Although they may have moved them back into more equity-dominated funds in April, the FTSE 100 actually made its biggest recovery between 23 and 26 March so their clients’ money would have been out of the market at the optimum time. This is a clear sign that adding value by trying to ‘time the market’ does not work.

Advice, in our view, goes much further. It can cover: 

  • Behavioural coaching
  • Spending strategies
  • Portfolio rebalancing 
  • Tax-smart recommendations
  • Financial planning  

It’s all part of building a long-term relationship where the adviser really gets to know the client and understands their objectives for life.    

Behavioural coaching, in particular, can be useful in helping an investor to ignore market noise and to keep their emotions at bay so that they avoid expensive mistakes and stick to their long term goals. 

Research over a number of years by the International Longevity Centre (ILC) showed that using a financial adviser led to better financial outcomes in the following ways:

  • Taking advice added £2.5bn to people’s savings and investments,
  • The pensions of clients who received ongoing advice were worth 50% more than those who took one off advice. 
  • Those who took advice were likely to be richer in retirement.
  • The benefits of advice outweighed any costs associated with it 

In addition, the University of Montreal estimated that clients with an adviser would have a 2.73 times larger savings pot over a 15-year period than clients who hadn’t seen an adviser. If that time frame was reduced to five years, the savings pot would still be 1.58 times greater. 

Different investment companies quote different figures but on balance agree that advisers can generate between 3% and 4.4% per annum net returns for their clients.      

Set against this backdrop, it would seem financial advice does have a real value to offer.   

July markets in brief

Thursday, July 9th, 2020

As much of the West continues to tentatively emerge from months of lockdown measures, June has been an altogether more positive month when it comes to economic news. All the markets we report on rose during the month.

The global Black Lives Matter movement and the new Hong Kong security law usurped Covid-19’s position as the headline item on global media outlets for much of June, a sign that perhaps we are beginning to emerge into a ‘new normal’.

However, recent resurgences of Covid-19 in California, Texas and Florida demonstrate just how tentative this emergence must be.  Meanwhile, the virus continues to ravage much of the developing world, with a recent surge of cases in South Africa and other African countries.

UK

Unsurprisingly, most of the bad news came from the retail sector. Figures published in early June saw sales fall by 5.9%, in spite of the fact that many shops had moved online. Estimates suggest that around £2.15bn of commercial rent was unpaid for the quarter ending in June. Shirtmaker TM Lewin was the high street’s latest casualty, as it moved all sales online at the cost of 700 jobs.

However, there was positive news aplenty. Speaking on 30th June, Bank of England economist Andy Haldane announced that the UK economy was still on course for a quick, V-shaped recovery coming “sooner and faster” than expected. 

On the back of this, at the end of June, Boris Johnson announced his ‘New Deal’ worth £5bn, evoking President Roosevelt’s New Deal of the 1930s, a massive infrastructure spending designed to drag the US out of the Great Depression. Roosevelt’s deal was worth around 40% of the US GDP in 1929. By comparison, £5bn amounts to a more modest 0.2% of current UK GDP – not quite on the same scale.  

The FTSE100 rose by a modest 2% during the months closing at 6,170. And the pound was unchanged against the dollar, ending June at $1.2388.

Europe

All was relatively quiet on the continent from a news point of view. The European Central Bank (ECB) raised no alarm bells when it cut its growth forecast for the year. It now expects the Eurozone economy to contract by 8.7% this year. 

The ECB was again active in boosting the Eurozone economies, ramping up its quantitative easing programme by €600bn to a whopping €1.35tn, extending the programme to June 2021, six months later than originally planned.

Unsurprisingly given the economic turmoil, there were significant job losses. Airbus announced that it planned to cut 15,000 jobs across Europe, only to be expected in a year that has been the worst on record for the aviation industry.

Both major European stock markets we report on had strong months. The German DAX index rose by 6% to 12,311 while the French stock market was up 5% to 4,936. 

US

The US’s unemployment crisis continued in June. Despite the good news that the US economy had added jobs in May as measures were released in many states, a further 1.5 million people had filed for unemployment benefit. There are now 44.1 million Americans claiming unemployment support.

Like every other major economy, the US is now officially in recession. This means the end of a decade-long period of economic expansion. The Fed duly reminded US banks to ‘stay prudent’ as it warned that they could suffer losses of up to $700bn if the pandemic led to a sustained economic crisis.

As in the UK, the American retail sector suffered. Gap posted a $923m loss for the three months to May, compared to a $227m profit for the same period last. 

Despite a spike in virus cases towards the end of the month, the Dow Jones ended the month up 2% at 25,813. From this month forward, we will also report on the more broadly based S&P index, which closed June at 3,100.

Far East

June ended with China passing the controversial Hong Kong security law. The law gives Beijing wide ranging powers over Hong Kong. The law states that anyone who conspires with foreigners to provoke “hatred” of the Chinese government could have committed a criminal offence. Many are worried that this law could make criticism of the Chinese government ilegal. 

The security law wasn’t the only point of controversy from China during the month. There was escalating tension between India and China and there were clashes in a Himalayan border region, with reports suggesting that up to 20 Indian troops had been killed. A rise in tensions between the world’s two most populous countries is a real cause for concern.

And if this wasn’t enough disruption, Australian Prime Minister Scott Morrison said that the country had been the victim of a “sophisticated state-based cyber hack” and many commentators quickly pointed the finger at China.

On a more positive note, the UK opened trade talks with Japan. The region’s markets seemed to respond as if improving bilateral relations were the trend across the region, when in reality the opposite was true.

China’s Shanghai Composite index rose 5% to 2,985 and the Hong Kong market did even better, climbing 6% to 24,427. The South Korean market was up 4% to 2,108 and Japan’s Nikkei Dow index gained 2% at 22,288. 

Emerging Markets

As we write this, on 2nd July, Vladimir Putin has just won a controversial vote to amend the constitution. Importantly, the vote means that Putin’s term limits have been reset, potentially allowing him to rule as president until 2036.  

The Indian economy seems to be rebounding rapidly in the wake of its lockdown which was released on 1st June. Figures suggest that goods movement is close to pre-lockdown levels.

On the other side of the Pacific, Brazil became the second country to reach 1 million cases of Covid-19, and experts have said that Brazil could ultimately become the country worst hit by the pandemic.

Both the Indian and Brazilian markets enjoyed excellent months. The Indian stock market rose 8% to end June at 34,916, while Brazil went one better, gaining 9% to 95,056. In contrast, Russia, the other major emerging market on which we report, had a subdued month and rose just eight points to 2,743. 

Whether you’ll be enjoying that first refreshing pint in a pub or having a much needed haircut, we hope that you have a great July. Please get in touch if you have any further questions around this commentary.

5 key points for becoming financially independent

Wednesday, June 24th, 2020

Financial independence can seem like the holy grail. We may be striving towards it but feel bombarded by lots of conflicting messages on how best to attain it. These five points give an interesting perspective:    

Income is not the same thing as wealth

Having a high salary can help you accumulate wealth but that’s no good if you’re still spending more than you earn. That’s why you might hear of a professional footballer earning £30,000 a week going bankrupt while a bus driver, who’s saved diligently all his life, can retire a multi-millionaire. To avoid the spending trap, remember your real wealth or net worth is the amount on your balance sheet – your assets minus your liabilities.

Regardless of what your income level might be, try and achieve financial independence by thinking long term. What goals can you put in place regarding your career plans, your investments or any property you may have?        

Create surplus funds

To take advantage of any investment opportunities, you need to have sufficient money to invest, and to be successful in investing, you need to reach a critical mass. At this point, the returns generated on your savings will have more impact. For example, a 10% return on £10,000 would give you £1,000 before tax, while the same return on a portfolio of  £1,000,000 would give you £100,000 for the same amount of effort and research.

Amassing wealth is a gradual process but through small steps to cut expenses or generate income, it can amount to something over time. When the interest your money has earned starts to earn interest too, that’s when you’ll really start to notice the difference. This is where the power of compounding comes in. It also means you can invest more the next time an opportunity comes round and so on.     

Taxes have an impact

Think carefully about where you hold your assets. Remember not all income is treated the same. You may have a great deal of wealth but be generating a lot of taxable income, while someone who has attained their goal of financial independence may have maximised their capital gains allowance and done some tax-efficient retirement planning.

Take control of your time

Your definition of financial independence may be being in charge of how you spend your time each day. Enjoying what you do for hours on end can be better than any financial return. So while you may not have quite reached your ultimate investment target of maintaining your ideal lifestyle without a monthly paycheck, having the freedom to spend your time how you want is worth a great deal.             

Promote the same values

Becoming financially independent is easier if the rest of your family shares the same goal and beliefs. Does your husband or wife have a similar attitude to saving, investing and risk as you?     

Encourage your children to grow up to be financially independent and manage their own money. Offer them support but don’t let them grow up always expecting a financial hand-out or free board. You’ll never gain financial freedom and neither will they.     

 

June Markets in Brief

Wednesday, June 3rd, 2020

May saw a more positive month for most of the stock markets we discuss, despite the COVID-19 pandemic taking centre stage across the globe. India and Hong Kong aside, all major stock markets made gains during the month. 

The world is tentatively beginning to emerge out of lockdown and there are some signs that the engines of the world’s economies are beginning to restart. These might serve as some consolation for concerned investors, which – given the current crisis – must include anyone with stocks, shares or an invested pension.

However, it must be emphasised that we are still far from a fully fledged economic recovery. Although there are some promising signs, like early flowers in Spring, these signs could be quickly killed off by the economic frost that would result from a second outbreak of COVID-19. Away from the stock markets, the global unemployment crisis deepened to depths not seen in living memory and many large firms remain just a rescue package away from collapse.

UK

The UK continued its economic stimuli policies during the month as it “fought back” against the global pandemic. Rishi Sunak announced that the furlough scheme would be extended until October, although companies will be asked to contribute an increasing amount to the cost. 

May saw the return to work for many after Boris Johnson announced the gradual easing of lockdown restrictions on 10 May. However, the high street remains closed for ‘non-essential’ shops until 15 June, and the possibility that consumers – in the words of M&S boss Steve Row – “may never shop the same way again.” Lifestyle retailer White Stuff were among the latest to announce significant job cuts over their 120 UK stores.

There have already been many job losses across the country and there are expected to be many more as the furlough scheme winds down. Boris Johnson has hinted at a post-crisis jobs programme which would create “high class jobs for the country”; the success of such post-crisis recovery strategies will be vital as the country emerges from the crisis. 

The FTSE rose by a promising 3% during the month to end up at 6,077, and the pound fell by 2% against the dollar to close the month at $1.2343.

Europe

The economic picture across the channel certainly wasn’t a rosy one. During the first quarter, the Eurozone economy contracted by 3.8% and the European Commission forecasted a “deep and uneven recession.” 

There was plenty of grim company news. Renault announced 15,000 job losses around the world, despite the French government’s announcement of an €8 billion rescue package for the car industry. Elsewhere, Nissan closed its Barcelona plant with 3,000 jobs lost.

In spite of all this bad news, the continent’s major stock markets both finished up, possibly bolstered by the €750 billion EU rescue package announced during the month; the German DAX was up by an impressive 7% to 11,587 and the French stock market rose 3% to 4,695.

US

The world’s largest economy suffered a tough month. By the end of May, nearly 40 million Americans were claiming unemployment benefits and Jerome Powell, Chairman of the Fed, announced that the economy could contract by 20-30% during the crisis. 

General Electric announced massive job cuts that could amount to 16,000 jobs and car rental firm Hertz filed for bankruptcy protection after the pandemic caused demand to “collapse”.

Declining retail sales and a record fall in manufacturing output have fanned the flames of this hard economic picture. However, there are faint signs of optimism that new economic opportunities will emerge for innovative firms after the crisis. Thankfully, America’s stock markets echoed this optimism rather than the discouraging headlines. The Dow Jones index enjoyed a good month and rose by 4% to 25,383.

Whatever you’re planning to do in June, we hope you have a pleasant month. In spite of the gloomy news and uncertainty, in May the UK enjoyed the sunniest calendar month on record. We hope that this fine weather continues during June and that you’re able to make the most of it, even if it’s just from the comfort of your garden.

May market commentary

Wednesday, May 6th, 2020

Right now, even a week seems a long time in the news agenda. Remembering the end of March, when we wrote our last Market Commentary, feels like looking back into a different era. 

Reflecting back, how did we leave March? With the US having overtaken China as the country with the most confirmed cases of coronavirus: with the UK’s Prime Minister, Health Secretary and Chief Medical Officer having all tested positive for the disease – and with world stock markets having suffered their worst three months since 1987. 

“The figures that follow will not make for pleasant reading,” we wrote. “It is scant consolation that they would have looked much worse in the middle of the month, before governments around the world rushed to put stimulus packages in place to protect their economies and businesses”.

Well, there’s still plenty of bad news in this commentary. Both China and America reported sharp falls in their first quarter GDP – in China’s case, the first fall since they started recording quarterly figures in 1992 – and the figures for the second quarter will be far worse. Whichever organisation you turn to – the World Bank, the International Monetary Fund, the ratings agencies – they are all making dire predictions. The IMF, for example, is forecasting the worst economic depression since the 30s. 

Despite this, world stock markets have risen: all the markets we cover in this commentary were up during April. 

Of course the world will look very different when we finally emerge from this crisis. With the Times predicting we’ll need to be at an airport four hours before our flight – for medical screening as well as security – we’re glad we didn’t choose a career in the airline business this morning. 

But where there is change there is also opportunity: new companies will find new ways of bringing new products to new markets. Let’s look at all the details from April – a month when the Prime Minister survived three days in intensive care when, “it could have gone either way” and became the father of a baby boy – and see if we can find some light amid the gloom. 

Coronavirus: Fighting Back 

Almost without exception, countries around the world have put stimulus and rescue packages in place to protect businesses and jobs. In the UK – following widespread criticism of the banks – Chancellor Rishi Sunak has said the Government will now guarantee 100% of loans to small companies, up to a maximum of £50,000. These ‘bounce back’ loans will be available from May 4th. 

For bigger firms, the Government will continue to guarantee 80% of the loans, with companies whose turnover exceeds £45m now able to apply for up to £25m of finance, and companies with a turnover of more than £250m eligible for up to £50m of finance. 

The job retention scheme also swung into action, with the UK Government effectively employing a million extra people on the first day it was in force. 

In the US, the Federal Reserve has perhaps gone even further, offering to buy debt from big companies, helping out local and state governments and lending directly to small and medium sized businesses. These loans are over a four year period – perhaps an indication of how long the Fed believes some companies will take to get back on their feet…

These measures represent a huge commitment on the part of governments: for example, the Guardian estimates that Europe’s rescue package is worth a combined €1.7tn (£1.6tn). They will all need to be paid for one day and – inevitably – there will be countries who struggle with the increased debt burden. You suspect that the impact of coronavirus will be felt long after someone has found a vaccine. 

UK 

The UK headlines at the beginning of April made universally grim reading. ‘A fifth of small firms will run out of cash.’ ‘One million people apply for universal credit.’ ‘Sunak shakes up loan schemes amid widespread criticism of the banks.’ 

…And that was before you went anywhere near the nation’s high street.  Depressing headlines from the retail sector included: ‘March was the worst retail month on record,’ ‘Debenhams facing administration’ and ‘Oasis and Warehouse go into administration.’  

There was plenty more bad news throughout the month and there will undoubtedly be more to come. As Sir John Timpson – of the eponymous high street chain – said, “some household names will simply disappear”. 

As we noted above, the UK Government will now guarantee 100% of loans to small businesses up to a maximum of £50,000. This may turn out to be the most important business initiative of the whole crisis: it will mean that thousands of small companies that might have otherwise failed will now survive the pandemic. 

Yes, it is hard to find good news in the short term – although cheaper clothes and fuel did see UK inflation fall to 1.5%. The figures for the first quarter will undoubtedly show a sharp fall in UK GDP, and the current predictions are that it could fall by anywhere up to 35% in the second quarter. In the middle of the month, the Guardian was predicting up to 2 million job losses. 

But, as the Prime Minister said in his briefing on 30th April, the UK appears to have passed the peak of the first outbreak. The challenge now is to relax the lockdown and re-start the economy without risking a second spike. As the Chancellor said, the UK came into the crisis with “a fundamentally sound economy”. Like him, we are confident that the country – and its economy – will bounce back. 

The FTSE 100 index of leading shares echoed that optimism. Despite falling 200 points on the last day of the month, it ended April up 4% at 5,901. The pound was up by 1% against the dollar in the month, closing at $1.2587. 

The Brexit Negotiations 

Do you remember the good old days? When the Brexit negotiations dominated the news agenda? When Theresa May brought her Withdrawal Bill back to Parliament three times? When every vote – in the Commons or the courts – seemed crucial? 

The Brexit negotiations are still ongoing. Lest you have forgotten, an agreement with the EU is due to be reached by the end of the year. As things currently stand, if no agreement is reached, the UK will begin trading with the EU on World Trade Organisation rules. 

The talks to find an agreement duly resumed after Easter and by the end of the month both sides seemed to accept that some – albeit limited – progress had been made. Inevitably, there were calls to extend the current deadline: Norbert Röttgen, chair of the Bundestag’s foreign affairs committee and an ally of Angela Merkel, told the Observer that the deadline would need to be extended by two years. 

Not so, said Michael Gove to the Telegraph, as he explained that the current crisis was exactly why a deal should be wrapped up quickly. 

We will, of course, continue to keep you updated. One thing that is certain, though, is that UK/US trade talks have been postponed indefinitely while the two countries deal with coronavirus. 

Europe 

It was a while coming, but in the middle of the month, the European Union finally agreed a €500bn (£434bn) rescue package for countries hit by the pandemic, with an opinion poll showing that German voters were in favour of supporting the economies of Spain and Italy. 

How far the money will go is questionable, with the chairman of French car giant Renault saying the company needed €5bn (£4.3bn) “to protect it from damage from the coronavirus pandemic”. He added that they “are working on the idea of bank loans that would be guaranteed by the state”. 

As we mentioned above, the combined bailout packages put in place by the individual European countries run into the trillions of Euros. European economies will need to revive quickly and as the month ended, there were signs of a partial easing of lockdown measures in several countries. 

Confidence will also need rebuilding, with consumer confidence falling to levels last seen in the financial crisis of 2008, and business confidence in Germany described as ‘catastrophic.’ 

The Ifo Institute think tank’s business climate index slumped to 74.3 in April from 85.9 in March – a level never previously seen. “Sentiment at German companies is catastrophic,” said Ifo president Clemens Fuest. “Companies have never been so pessimistic. The crisis is striking the German economy with full fury”. 

As if to reinforce this, the last day of April brought the news that the Eurozone economy had shrunk at a record rate, with GDP falling by 3.8% in the first quarter of the year. 

Despite all the gloom, the leading European stock markets rose in April, dragging the smaller markets up with them. The German DAX index was up 9% to 10,862 while the French stock market rose 4% to 4,572. 

US

For as long as we have been writing this Bulletin, we have included almost the same sentence in every section covering the US: ‘last month saw the US economy add another 150,000 jobs.’ Or words and numbers to that effect…

Nothing more starkly illustrates the impact of coronavirus on the world’s biggest economy than April’s jobs figures. On 3rd April, we noted: ‘US jobless claims soar to 6.6m as 236,000 test positive.’

On the last day of the month it was reported that 3.8m Americans had filed jobless claims in the last week, down from 4.4m in the previous week. Over the last six weeks, approximately 30m Americans have lost their jobs as some states have all but shut down their economies, with the country now having more than a million confirmed cases of the virus. 

The US government has, of course, sought to counter this with an unprecedented fiscal and monetary stimulus, passing bills worth around $3tn (£2.4tn), while the Federal Reserve has slashed interest rates, pumped trillions of dollars into the economy and started lending directly to small and medium sized companies. 

Will it work? The President is confident that the economy will ‘bounce’ back quickly and that the US will shortly be testing 5m people a day – against a current figure of around 300,000. 

In company news, Disney stopped paying 100,000 of its workers but announced that it had added 50m subscribers in five months to its subscription service, Disney Plus. Confirming the ‘ill wind’ theory, Netflix said it had added 16m subscribers during the crisis. 

Ford reported that it had lost $2bn (£1.6bn) in the first three months of the year as sales dropped 15% and Starbucks confirmed sales were down 10% in the first quarter – but 50% in China. However, lockdown was good news for Mondelez, owner of Cadbury, Oreo and Triscuits, where quarterly sales surged by 15%. 

You know what they say: ‘When the going gets tough, the tough start snacking…’ 

The Dow Jones index – in line with other world stock markets – was much more Oreo Cookies than Ford or Starbucks, rising by 11% in the month to finish April at 24,346. 

Far East 

What impact did the virus have on the Chinese economy? Economists and forecasters waited for China’s first quarter GDP figures to be announced, with some pundits expecting a fall in the country’s GDP of up to 10%. 

In the event, the figure was 6.8% – the first quarterly fall since the country started recording quarterly economic data in 1992. 

“This will translate into permanent income losses, reflected in bankruptcies and job losses,” said Yue Su at the Economist Intelligence Unit. 

…And not just in China. As we will see below, the virus will hit emerging economies especially hard, with the International Monetary Fund predicting that the wider Asian economy will see no growth this year, for the first time in 60 years. The IMF says the region will “face the worst recession since the Great Depression”. 

This was reflected to some extent in HSBC’s first quarter profits, which halved to $3.2bn (£2.6bn) as the company announced that it would put the ‘vast majority’ of its planned 35,000 redundancies on hold due to the ‘exceptional circumstances.’ 

In line with all the other leading stock markets, the four major markets in the Far East all made gains during April. South Korea led the way, rising by 11% in the month to 1,948. The Japanese Nikkei Dow index rose 7% to 20,194 while the markets in China and Hong Kong were both up by 4% to 2,860 and 24,644 respectively. 

Emerging Markets 

It hardly comes as a surprise but April was a worrying month for emerging and developing economies around the world. Clothing manufacturers – among the biggest employers in Asia – gave a dire warning of the impact the virus would have on employment. Sadly, the clothing sector was far from alone in issuing warnings. 

The International Monetary Fund expects 170 countries (out of 195 recognised by the UN) to experience a decline in economic activity per person this year, which will translate into a direct fall in average living standards. The World Bank expects that the virus will mean South Asia – home to economies such as Bangladesh, Pakistan and Sri Lanka – will see its worst economic performance for 40 years. 

Despite this, Facebook chose to place what the papers described as ‘a $5.7bn (£4.6bn) bet on India’s richest man.’ Facebook is buying a 9.99% stake in mobile internet company Reliance Jio which will give it a major foothold in India, where WhatsApp already has 400m users and is about to launch a payments service. 

And it was the Indian stock market that led the way, turning in the best performance of any of the markets we cover in our monthly commentary. It was up 14% in April to end the month at 33,718. The Brazilian market was up 10% to 80,506, while the Russian stock market rose 6% to close at 2,651. 

And finally…

April got off to the worst possible start for beer drinkers, with news that up to 50m pints of beer could go to waste if lockdown lasts until the summer. The estimate was made by the Campaign for Real Ale (CAMRA), based on the amount of beer the UK’s 39,000 pubs will have in their cellars and the length of time it takes to turn bad. Tom Stainer, chief executive of CAMRA, told the BBC it was “a tragic waste”. 

April wasn’t a month that went terribly well for Brant Walker either. Brant is the mayor of Alton, a small town in Illinois with a population of just under 30,000.There were widespread reports of residents ignoring lockdown and social distancing, so Mayor Walker quickly ordered the local police to ‘vigorously enforce’ the rules. 

The next day, Alton’s finest broke up a party at the town’s Hiram’s Tavern, with revellers “clearly disregarding” the Mayor’s executive order. One of those at the illicit party was a lady called Shannon – unfortunately, Mayor Walker’s wife. “I am embarrassed and apologise to the citizens of Alton,” said the mayor in a statement. “My wife … showed a stunning lack of judgement”. 

Oh to be a fly on Mr and Mrs Walker’s kitchen wall…

And quite possibly on the cucina wall of Signore and Signora Faggiani as well. Bored with lockdown, Fabio Faggiani decided to run a full marathon, inside his apartment. He did this by running round his dining room table: completing the full distance of 26.2 miles meant that Fabio had to lap the table 2,800 times. 

There is no word yet on whether Signora Faggiani was trying to watch television at the time. Or, indeed, on whether the people in the apartment below were cheering Fabio on. 

We might, in previous bulletins, have jokingly referred to Messrs Walker and Faggiani as ‘heroes.’ April brought us a real hero. 

We refer, of course, to Captain Tom Moore, who wanted to walk 100 laps of his garden before his 100th birthday and, in so doing, perhaps raise a “bit of money for the NHS”. As we write this – very appropriately, on Tom’s 100th birthday – that ‘bit of money’ so far amounts to over £31m. Happy birthday, Colonel Tom: never was a promotion more richly deserved.  We salute you!

How to make the most of a Junior ISA nest egg

Wednesday, April 22nd, 2020

As of 6 April, the amount you can put into a Junior ISA (JISA) per annum has increased to £9,000 – quite a jump from the previous allowance of £4,368.

The tax saving this provides makes it an effective way of building up a nest egg for your children if you want to help with a gap year, university fees, or to enable them to get a foot on the property ladder.  

Which type of JISA?

You can choose to put the money into either a cash JISA or a stocks and shares one. Even in these low-interest rate days, the cash ones can attract quite generous rates with some as high as 3.6%. Another advantage is that they don’t have the volatility associated with the stock market, a particular issue at the current time.          

Yet while the majority of JISAs tend to be in cash, experts state that this can be a wasted opportunity. Despite the recent turmoil, the stock market will usually outperform cash savings over the long term. Wealth manager, Jason Hollands, calculates that if you achieved a 6 per cent annual return – which he describes as ‘quite modest’ – a JISA that had £9,000 invested in it each year would be worth more than £290,000 after 18 years. As you can see, once compound interest kicks in, it can have a considerable effect. He estimates that even JISAs that had smaller sums of £50 or £100 a month invested into them would accumulate pots of £19,367 or £38,735 respectively.

So if you’re wanting to use the JISA as a vehicle for a long-term investment to get your child through a degree course or to help them to buy a property, cash is not the most effective way to do so. 

It’s also advisable to invest a regular amount on a monthly basis amount rather than just put in lump sums at specific times. This avoids the worry of knowing whether it’s the right time to invest and also has the benefit of smoothing out the peaks and troughs in share prices.  

Inheritance Tax Implications

Parents or guardians are the only ones who can actually open a JISA but grandparents can pay money into the account. This can be a productive way of using up their annual gift allowance. They do just need to bear in mind the Inheritance Tax rules, though, especially now the JISA allowance has increased. The annual gift allowance on an Inheritance Tax free basis is £3,000 per donor (with one year’s allowance carried forward). Inheritance Tax would be charged on anything over this limit in the seven years before their death. Gifts of up to £250 per person can be given during the tax year as long as another exemption has not been used on the same person.

Once your child turns 18, the JISA becomes theirs. They can either access it directly or transfer it into an adult ISA. This encourages them to develop a lifelong interest in money and helps build up a great investment discipline. In fact, the Government’s decision to increase the JISA allowance was all part of its aim to create a generation of savers.    

The new JISA allowance could mean that your child comes of age on a much sounder financial footing.  

April Market Commentary

Wednesday, April 8th, 2020

In March, the coronavirus outbreak seemed to steal all the headlines, giving us almost hourly updates as it transformed our lives, and made the word ‘unprecedented’ feel like an understatement. Inevitably, there has been a serious impact on world stock markets, which have suffered their worst quarter since 1987.

The figures that follow will not make for pleasant reading: it is scant consolation that they would have looked much worse in the middle of the month, before governments around the word rushed to put stimulus packages in place to protect their economies and businesses. To give just one example, the US government passed a near $2tn (£1.62tn) aid package, described by one US Senator as a “wartime level of investment in the economy.”

It is worth noting that markets have always recovered over time. They recovered from the crash in 1987 and they recovered from the 2008 financial crisis.

Inevitably, the impact of the pandemic overshadows this Commentary. We have, therefore, added an extra section. Optimistically titled ‘Coronavirus: Fighting Back’, it details the economic and fiscal efforts governments are making in the face of the virus.

Coronavirus: Fighting Back

As we mentioned above, governments around the world have been launching stimulus packages to help their economies withstand the shock of the Covid-19 epidemic.

In the US, the Federal Reserve initially announced a $700bn (£565bn) package of aid, which was subsequently dwarfed by a near $2tn (£1.62tn) intervention. President Trump declared the pandemic a national emergency, opening the way to yet more state aid and direct intervention in the economy. By the end of the month, he was talking of a $2tn programme of infrastructure investment to boost the US economy.

UK Chancellor Rishi Sunak delivered his Budget speech on 11th March – which now feels like several months ago – and initially announced a £30bn package of aid for business. “We will do whatever it takes,” he declared. A week later he was back, announcing a much larger package of aid which now covers small business grants, business interruption loans, help with wages, business rate reliefs and help for the self-employed.

The EU announced a €750bn (£700bn) aid package in the middle of the month and both the World Bank and the IMF pledged money to fight the outbreak and its economic impact.

Will all this be enough? The simple answer is that no one knows: as we have commented below, even with all this intervention some household names will be out of business by the time the dust finally settles. Hopefully the picture will look brighter by the end of April, otherwise we may see another raft of central bankers standing sombrely at lecterns while they deliver another round of aid packages.

UK

In any normal month, Rishi Sunak’s first Budget – and his promise of massive investment in the UK’s infrastructure – would have taken up the bulk of this section of the Commentary. As we have seen, anything the Chancellor announced on 11th March was almost immediately superseded by events and – when this is finally over – another Budget seems inevitable. Like other countries, the UK will, one day, have to pay for the rescue package and the unprecedented increase in Government borrowing.

Whether there will be a UK high street to play its part in that recovery is currently looking questionable. There are always winners and losers from crises: currently the supermarkets (reportedly busier in March than at Christmas) and Amazon are the winners, while ‘ordinary’ shops are very much the losers. Pubs and restaurants up and down the land are going to close, irrespective of how much help the Chancellor gives them with business rates. The closure of the Carluccio’s chain – putting 2,000 jobs at risk – will not be the last by any means.

John Lewis has warned that stores could close, shopping centre operator Intu has said it could go bust and even before lockdown was introduced in the UK high street, footfall was down by 8%. Goodness only knows what the figure will be now.

Marks and Spencer, and several other household names in the fashion and retail sector, are warning of closures. As one analyst put it, “You do not buy a new outfit to stay at home”.

The rest of the UK news is, inevitably, dwarfed by the impact of the crisis. You won’t be surprised to hear that both consumer and business confidence fell during March, or that the UK’s credit rating was downgraded as a result of the pandemic. Credit rating agency Fitch dropped the UK from AA to AA- as it said that the country’s economic output would fall by almost 4% this year.

Was there any good news? At the beginning of the month, Nissan announced that it was investing £400m in its Sunderland plant to build the new Qashqai – and two days later the Chinese firm Jingye completed the takeover of British Steel, safeguarding 3,000 jobs. Then, on the morning of the Budget, the Bank of England cut base rates from 0.75% to 0.25%.

None of this, of course, could do anything to stop the stock market’s slide in March. The FTSE 100 index of leading shares fell 14% in the month to close at 5,672 and is down by 25% for the year as a whole. The pound fell 3% in the month to end March at $1.2415, down 6% against the dollar for the year to date.

Brexit Negotiations

March began with the UK saying it would take a ‘hard line’ in trade talks with the US as the Government pursued trade deals around the world in the wake of leaving the EU. The first round of trade talks with the EU was held at the beginning of the month, with the intention of reaching an agreement by the end of the year. That first round of trade talks threw up ‘clear differences’ – but that was always going to be the case.

Then, in the middle of the month, came the news that the EU chief negotiator Michel Barnier had tested positive for the Covid-19 virus. A week later it was Boris Johnson’s turn, swiftly followed by Health Secretary Matt Hancock and the UK’s Chief Medical Officer.

Predictably, talks with the EU are now on hold. Equally predictably, reactions to that news depend on your original viewpoint. The two sides are either saying that a deal by 31st December is now impossible or muttering, “Have they never heard of Zoom?”

Hopefully, the situation will be clearer by the end of April. We will, as always, report back…

Europe

March was the month that Europe went into lockdown. It had started with the normal corporate news we have come to expect, with the IFO Business Climate survey saying that the German car industry ‘would face significant challenges’ over the months ahead.

A week later the whole of Europe was facing a very different challenge as Italy went into lockdown and Angela Merkel predicted that up to 70% of Germans could be infected by Covid-19.

Factories rapidly started closing all over Europe, free movement was forgotten as individual countries closed their borders and the ECB raced to implement a rescue package, scrapping its budget rules to fight the virus.  

The impact of Covid-19 on Europe could be severe and long lasting. The blow to Italy’s economy – to take just one country – could be catastrophic, especially with several Italian banks long having been widely seen as vulnerable. If the outbreak is prolonged then the fragile economies of Spain, Greece and Portugal are going to compound the problem. The German taxpayer may ultimately decide that their own country is the only priority.

In keeping with the rest of the world, March was not a happy month for European stock markets. The German DAX index fell 16% to 9,936 while the French market fell 17% to 4,396. For the year as a whole, the two markets are respectively down by 25% and 26%.

Illustrating how vulnerable some of the smaller markets might be, the Greek stock market fell 22% to 558 in March, and is down by 39% since the start of the year.

US

Total ‘non-farm payroll employment’ in the US rose by 273,000 in February, with the US Bureau of Labor Statistics reporting that the unemployment rate was unchanged at 3.5%.

The difference in March was that the figures were out of date almost as soon as they were announced. As the figures came out, the US Federal Reserve was implementing the first emergency cut to interest rates since the collapse of Lehman Brothers in 2008. As one report put it, ‘the world’s biggest economy is running scared’. Chairman of the Federal Reserve, Jerome Powell, said that the cut would be a ‘meaningful boost’ to the US economy.

A fortnight later, the Fed had to act again – effectively cutting US rates to zero and announcing a stimulus package worth $700bn (£565bn). This was subsequently dwarfed by the near $2tn package which the US administration approved by the end of the month.

But, as the old saying goes, ‘it’s an ill wind that blows no good’. No one will be surprised to hear that Amazon has gone on a hiring spree as the demand for home deliveries rockets.

Away from the economy, it is looking almost certain that the US Presidential Election in November will be between Donald Trump and Joe Biden – formerly Barack Obama’s Vice President. March saw Biden defeat Bernie Sanders in a string of primaries and go a long way to clinching the nomination.

When Donald Trump was inaugurated in January 2017, the Dow Jones index stood at 19,732. To the President’s horror, the Dow slipped below that level at one point in March, falling to 18,917. By the end of the month, it had recovered to 21,917 where it was down 14% for the month and 23% for the year as a whole.

Meanwhile, the economic news continued to worsen, with 3.28m Americans – an unprecedented number – seeking jobless benefits and American Airlines saying that it will need $12bn (£9.7bn) in state aid. The remark of UK Chancellor, Rishi Sunak – “we will not be able to protect every business and every job” – will apply just as much in the US as it will in the UK. By the end of this crisis, it may well be that many household names have ceased to exist.

Far East

The newspapers are already full of demands for there to be ‘a reckoning’ with China when the Coronavirus is over. Everyone reading this will have their own views on whether the Chinese Communist Party lied about and/or covered up the true extent of Covid-19 in the early days of the outbreak.

Whatever the truth, countries will continue to trade with China and so, for the purpose of this Commentary, the country’s economic performance remains important to both the Far East and wider world trade.

The beginning of March brought confirmation that Chinese manufacturing had fallen to a record low in February, with the Purchasing Managers’ Index down to 35.7 from the 50 it had recorded in January. At one point, exports were down by 17% as the virus had a bigger impact on Chinese manufacturing than the economic crisis of 2008.

Fast forward to the end of the month and those figures had been turned on their head, with the PMI soaring to 52 by the end of the month.

Despite this, the World Bank is predicting a year of ‘pain’ for Far Eastern economies. The Bank is now predicting that growth in China this year will be just 2.3% compared to a prediction of 6.1% made last year. This lower growth rate will inevitably impact the smaller Far Eastern economies, with the World Bank now projecting a best case scenario of 2.3% growth for the region this year, and a worst case of just 0.5%. This compares to the 5.8% growth forecast before the Covid-19 outbreak.

In the current circumstances, it is somewhat ironic that China’s Shanghai Composite Index delivered the ‘best’ monthly performance of those markets on which we report. It closed March at 2,750 from an opening level of 2,880, meaning that it was down just 5% in the month and 10% for the year as a whole.

The Hong Kong market fell 10% in the month to 23,603 (down by 16% since 1st January). The Japanese stock market fell 11% in March to close at 18,917 while the South Korean index fell 12% to 1,755. Both those markets are down by 20% for the year as a whole.

Emerging Markets

Back in 2018, Vladimir Putin won another six year term as Russian President and promptly laughed off suggestions that he would run again in 2024, when he will be 72.

But now it appears that Vladimir Vladimirovich has had second thoughts and – like his friend Xi Jinping – rather fancies being President for life. Before Covid-19 brought normal politics to an end, a Russian MP had proposed ‘resetting to zero’ the number of Presidential terms Mr Putin has served. In theory, the move will require the approval of the Russian Constitutional Court: you shouldn’t expect that to be a problem when normal service is resumed.

The Indian Premier, Narendra Modi, appears to be in rather more immediate need of reassurance. He has made a public appeal for forgiveness after making a very rapid decision to put 1.3bn people into lockdown. The situation is fast turning into a human tragedy as millions of the poorest migrant workers face walking hundreds of miles to get home, facing both rising temperatures and closed state borders.

Modi’s finance minister was also under attack after announcing an £18.8bn stimulus package for the economy: critics derided it as ‘not nearly enough.’

The Indian stock market ended the month down 23% (and 29% for the year as a whole) at 29,468. It was not, though, the worst performer in this section, as the Brazilian market fell to 73,020 – down 30% in the month and 37% for the first quarter. In relative terms, the Russian market did ‘well:’ it was down by just 10% in the month and, at 2,509, is down 18% for the year as a whole.

And finally…

We debated long and hard as to whether to include the ‘And finally’ section in the Commentary this month. In the end we decided to keep it for two reasons. First, we’ve long suspected that it is the most widely read section of the Commentary. Secondly, it’s a symbol of normal life – and a reminder, despite the fact that amusing stories were hard to find in March 2020, that we will get back to normal life one day.

And what could be more normal than the British Wife Carrying Championship? Technically we should have reported on it last month as it was held on 29th February, but sometimes even the most interesting stories take a while to make the papers.

We must add our congratulations to David Threlfall and Cassie Yates, the winners of this year’s race. Should you wish to see it, a quick search on Google or YouTube will help your self-isolation or working from home.

The event’s website certainly pulled no punches: wife carrying can be a dangerous activity, which can lead to slipped discs, broken legs and arms, limb dislocation, spinal injuries and hernias.

Nevertheless the event appears to be gaining in popularity. For any clients who may feel like participating next year, please note that ‘wives’ (not necessarily your own) must weigh at least 50kg. There are also generous prizes for anyone who might see wife-carrying as a route to the professional sports career they have long wished for.

The winner this year received a barrel of ale, the oldest ‘carrier’ won a pot of Bovril and a tin of pilchards, while the carrier of the heaviest ‘wife’ was rightly rewarded with a pound of sausages.

On that upbeat note, we’ll leave this month’s Commentary. Let’s hope the world is a more positive place when we report again in May. Until then, take care, stay safe and remember that if you need to contact us we are never more than a phone call or an email away.