March 2020

March 2020

View from the Square

The final week in February saw the biggest weekly fall in equities, since the financial crisis in 2008. The catalyst has been a heightened worry that Coronavirus (or Covid -19) will expand from an epidemic to a global pandemic – killing many thousands of people and severely impacting travel, supply chains and consumer confidence. As of the month end, most equity markets around the world reached correction territory (a fall of 10% or more, since a recent high).

As we have discussed in recent publications, 2019 was an excellent year for equity investors. This was especially so in the latter stages of the year, where the near simultaneous British election result and signing of a US-China trade deal caused markets to soar. It is often the case that when equity markets move this sharply in one direction, at some stage there will be an equally strong reversal, and this is what we have experienced in recent weeks. The catalyst was unknown but, in this instance, we have a perfect storm to rattle stock market investors in Coronavirus – an unquantifiable subject matter, with the potential to severely disrupt supply chains, dent consumer confidence and impact the earnings of companies we invest in - alongside an already stretched equity market.

In terms of the longer lasting impact of Coronavirus, estimates vary hugely. The negative scenario is a hit to global GDP of 1%: this would have a material impact on corporate earnings and justify the recent market falls, but would not necessarily lead to a global recession. The unquantifiable nature of the situation makes any guidance even harder to make – but we do expect a strong response from Governments and Central Banks around the world, particularly in the form of fiscal spending (which was already in the pipeline). We take some comfort that China has appeared able to get on top of the epidemic - albeit with a more authoritarian method of public isolation than would be possible or practical in the West. It goes without saying though that the extent of spread, death-toll and impact is still a big unknown and that will be reflected in market sentiment, which we expect to remain volatile throughout March. Any significant recovery will not likely occur until the second quarter or even second half of the year.

CS Investment Managers portfolios are generally multi-asset and diversified in nature, built for the longer-term. We hold a number of safer and less volatile assets, which act as portfolio ballast at times precisely like these. Unless Covid-19 turns out to be a global catastrophe, which we believe to be unlikely at this stage, we see any further weakness as opportunities to add to favoured holdings, rather than sell at this juncture.

Important Information Opinions constitute our judgement as of this date and are subject to change without warning Neither CS Managers Ltd, CS Investment Managers nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon any information contained in this document. CS Investment Managers is a trade name of CS Managers Ltd, 43 Charlotte Square, Edinburgh EH2 4HQ. CS Managers Ltd is authorised and regulated by the Financial Conduct Authority.


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