Taking Stock – July 2020
So now we are being asked to use our discretion on how we manage this phase of the pandemic, it becomes apparent that as a body, the great British public seems to do as they fancy with social distancing and sensible caution being cast aside.
Which means we have to think for ourselves and not follow the herd.
It is clear from the experiences in the USA and Brazil that ignoring common-sense rules increases the potential for the infection to multiply.
“They think it’s all over”
To quote Ken Wolstenholme at the World Cup 1966, it isn’t, so we urge you to stay safe and be patient.
To take the best part of a year out of our lives with the therapeutic effect of a Covid-19 imposed calm is better than losing the rest of our lives – yes?
So lecture over, what is happening in the world and how is it affecting our investments?
A “V” shaped recovery
The Bank of England has said they feel the UK economy will experience a “V” shaped recovery. If so, we will see a large increase in Gross Domestic Product (GDP) obviously in the next quarter and the accompanying euphoria that will go with it.
Stock markets have already rebounded considerably
We have already seen most of our client’s investments return to their pre-Covid-19 levels or close to it.
We believe that this will continue in the second half of 2020 because…
- The US Presidential election race usually drives the US stock markets up.
- The need to reconfigure the way many companies do business will provide opportunities for “disrupters” and “innovators” to create new ways of working and that will impact on their share values.
- Despite the impact of the disrupters, global core businesses that have been around for 20 to 100 years will not surrender their position easily.
- Cash reserves are high in many businesses and the cost of borrowing is at an all-time low so anyone with imagination will seize the opportunity to grow.
- Smaller companies with brilliant ideas will be snapped up by larger businesses who, having lost at least ¾ of a year will not wish to advance their cause slowly. So for them, acquiring the intellectual property of an innovator business is a sound idea and accelerates the acquirers’ growth.
- The whole of the Biotech sector will be asking how do they capitalise on the crisis and the potential for it to reoccur.
So we think careful fund selections will result in investments being worth more than they were at the beginning of 2020 with values ahead of inflation thus preserving the purchasing power of your money.
And the potential for investments other than shares to thrive?
- Commercial property is in crisis.
- Residential property values will rise cautiously.
- Government Gilts will be subdued due to the “flood” of money being created under Quantitative Easing.
- Corporate Bonds, selectively, can succeed.
- Interest rates will remain at record lows with some, possibly, “offering” negative interest rates.
- Europe is reviving but the core issues in Europe have not gone away so growth, subsequent to the relief rally, will be low.
- The UK will do better than most people expected.
- The USA will continue to grow.
- China will continue to expand but will be less loved and less trusted than before.
- Emerging Markets continue to depend upon the USA for growth and for China to “get out of the way” if they are to blossom.
The message?
Hold tight, good fund selection will deliver growth during the balance in 2020.
Stay safe…