ASPIM: Market Update
9th April 2020
As we approach the Easter weekend stockmarkets continue to make solid progress.
This movement has a number of characteristics. Firstly, it is in one sense a fairly obvious move. We have argued from the start of this crisis that markets would require the stabilisation of the virus itself in order to recover.
This stabilisation is clearly occurring now across continental Europe and the UK. Whilst there are clear problems with the US response there is also evidence of the peak being reached in the key metropolitan flash points such as New York and Seattle.
The economic consequences of its spread within the emerging world such as India and Africa may not be so great for us as investors, but the human consequences will be far graver. Perhaps we can take some solace that it is reaching the emerging world after large parts of the developed world have begun to recover and is therefore in some position to help.
Secondly, we have to be honest that this stockmarket recovery is quite separated from the economic situation and it is rather running away with itself. One could be forgiven for thinking it is a classic relief rally which could last just long enough to suck everybody in before petering out. Leadership remains limited of the rally and volumes low.
Most importantly we must not forget that the real economy has fallen like a barrel off a waterfall. There will be little or no good economic news for weeks. For this reason, it probably matters little quite how bad the short-term numbers are.
Investors have in essence concluded they are not relevant. Stockmarkets are looking beyond the economic shock to the recovery at the end of the year. For them to be right it has to materialise and only the most naïve could think there will be no long-term consequences from shutting down economies like this. As we have written before in the real world patients take months to recover from defibrillation not weeks.
We can however take comfort that in China the v-shaped recovery is well under way and there is now sufficient data to see it occur.
Something close to calm has also descended on bond markets albeit with still elevated spread levels. This is perhaps hardly surprising given Western governments have largely nationalised credit markets. A reality which is not lost on companies who have embarked on epic new issuance. Those opportunities we may seek to exploit in this area in the weeks ahead will firmly remain at the very highest end of the credit spectrum as we see rapid downgrades occurring in the lower tiers of investment grade and within high yield.
It is though, important to put the short-term aside sometimes – as much as it drags us in. With this in mind, and in a spirit of seasonal new life, our focus of research next week will be firmly upon ‘winning the peace.’ We cannot say for certain whether markets have bottomed. This may yet prove a relief rally. However, we do know they will bottom and that if it has not already happened it will happen soon.
Our time therefore will be spent on identifying the themes and markets which can mount a sustained recovery from this crisis. This is likely to include an analysis of the benefits of a Japanese model of business – where cash is king. But it must also focus on technology and those disruptive industries that will emerge stronger from the crisis.
Our hope is that in the days and weeks ahead we continue to see positive moves in the virus and that as a result we can take out to you a positive message about the exciting investment opportunities the future holds.
These pieces of good news are just sprouting of course, nervously pushing out of the soil and hoping not to be trodden down by the painful reality of the current crisis. Our job though is to spot them and position to benefit from them.
Can we thank you again for your support over this challenging time for everyone.
We believe that it has demonstrated clearly the need for good financial adviser and hopefully fostered in the general public a keener awareness of the need to plan ahead. No doubt in years to come this can serve as an opportunity to your business.