Markets react to coronavirus concerns – Update from Will de Baer – 24.02.20

In light of today’s global market movements, Will de Baer has written the below comment to give you a little more information on the drivers behind the moves and portfolio level activity should you receive any client questions…

Background to market moves…

Global equity markets had mostly shrugged off geopolitical concerns with the US markets hitting record highs only last week on 19th February. Investors had been buoyed by the ongoing central bank accommodation, the potential for fiscal stimulus and better than expected Q4 2019 results.

Over the weekend however, news of the Corona Virus ongoing spread outside China through major economies including South Korea and Italy, prompted concerns that the virus has not yet been contained and that the World Health Organisation (WHO) might be forced to declare the virus a pandemic, forcing a major coordinated global response to combat the spread.

How markets have behaved today…

Markets have today reacted to the news flow with a sharp sell off through risk assets in favour of the safe havens. At the time of writing the FTSE 100 was down 3.02% back to the pre-general election levels of early December 2019, as global resources, airlines, entertainment and other consumer services firms have been sold off.

Earlier in the day Asian markets closed significantly lower with the Korean KOSPI down 3.87%; the Hang Seng down 1.79% and Australian markets down over 2% for the day. The US markets followed suit with the S&P 500 down 2.5%. Investors have flocked to gold sending the metal up 2.5% in Sterling terms to record highs and sovereigns have rallied sending yields lower across the curve.

What have we been doing at portfolio level…

We believe that this sell off could continue for a number of market sessions as investors price in the potential economic impact of the Corona Virus and await some more positive news on the spread. Ultimately, this situation will be resolved, and our expectation is for continued monetary policy accommodation and a higher probability of fiscal stimulus.

As previously communicated portfolios currently have a higher allocation to cash following the sales of property exposures at the end of 2019 on liquidity grounds and the lack of re-investment opportunities given the then elevated levels of the market. Having anticipated a market pull back we have worked on a selection of excellent investment opportunities that we have been waiting to move into at a more favourable price. Investments that we are looking to buy include an online supermarket retailer, a US smaller companies fund, a private European technology fund, a healthcare REIT, a home building firm and a high-end luxury goods company amongst others.

Investor behaviour tends to overreact to these events and presents us with opportunities to invest in high quality companies and funds at an improved pricing level for the medium to long term. This next few days should be no different for us to make a start at adding a selection of new exposures.