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Global equity markets saw great turbulence in March due to the emergence of the coronavirus and the economic implications of containment measures put in place in many of the major developed countries to try to control the outbreak. The MSCI World index is down -17.78% year to date, whilst the FTSE 100 has declined -26.63%.  

The COVID-19 outbreak is now severely restricting social activities and travel in the US, Europe and UK and second quarter economic growth for these regions is likely to be materially lower. The depth and duration of any decline in growth will depend on two factors: how quickly infection rates peak, and how effective the fiscal and monetary policies rapidly put in place to support economic activity are. Central banks have acted in concert globally to try to prevent a liquidity crisis emerging in sectors such as travel and leisure, which are most impacted by the containment measures. Interest rates are at historic lows in many countries, including the UK, and the US Federal Reserve has recommenced its quantitative easing measures in a bid to support the US economy, the world’s largest. The UK government has also announced significant government spending measures to support individuals and businesses through the lockdown. The threats to the global economy are now well understood and it is probable that to a certain degree they have been priced into global stock markets, although further volatility is possible as equity markets digest new data and information. The global economy should recover once the outbreak is contained and equity markets should improve in response, but there is no clear timeline for this.

The spread of the coronavirus and its impact on global economic activity has materially changed the investment outlook for 2020. Trying to predict the ultimate impact for the global economy and the exact timing is impossible, but the clear investment implication is that a well-diversified portfolio is essential. This includes diversification by asset class and region, which is why our model portfolios include exposure to both bonds and equities and global diversification. There are also a number of actively managed funds within the portfolio whose managers can rapidly react to changing market conditions, in particular credit risks and possible dividend cuts and suspensions. Our Investment Committee are keeping abreast of developments in this quickly evolving environment, in-depth research and monitoring of fund selections within the portfolios is taking place and the Committee are in regular contact to ensure your portfolios are being managed effectively from the point of view of long term investment.

Date of publication: 3 April 2020

This article is for information purposes only. It does not constitute investment advice and is not a recommendation to invest. The value of investments and the income from them may go down as well as up and you may not get back your original investment.  Past performance is not a guide to the future.

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