Entering the Unknown
”A pessimist sees difficulty in every opportunity; an optimist sees opportunity in every difficulty” (Winston Churchill) In the four years that I have been writing this monthly update, never has there been a time quite like this. Covid 19 and the repercussions this dreadful pandemic are causing worldwide still remain deeply unsettling and uncertain.
Uncertainty is what markets detest most so deep breath and lets look at the data…
MSCI World -13.5% -21.5%
S&P 500 -12.5% -20.0%
FTSE -13.8% -24.8%
Nikkei -10.5% -20.0%
SSE -4.5% -9.8%
MSCI EM -11.4% -18.6%
And as is the norm when we are in times of crisis, people turn to the USD, giving it some strength., though the Euro and Japanese Yen have held up….data as follows
GBP +3.1% +6.3%
EUR +0.0% +1.4%
JPY -0.7% -1.5%
AUD +6.0% +14.4%
CNY +1.3% +1.6%
So where to start when trying to analyse what has just happened and give some kind of balanced view on what is going to happen moving forward.
Whilst the cause of this Market crash is unprecedented, the way markets are reacting can be compared to similar situations in the past. The last quarter was the second worst in recent history. Prior to that lets look at three of the worst in living memory:
Quarter 4 in 1987 after Black Monday saw 23.5% wiped off of the S&P 500. Buying at the end of that quarter (not the market low point but the end of that bad quarter) would have seen your investment rise by 8% in a year, 15% in three years and 43% in 5 Years
The Financial crisis of 2008 saw a Quarter 4 fall of 19%. Despite seeing further double digit losses in Q1 of 2009, buying a simple tracker at the end of 2008 would have seen your investment grow by 20% in a year, 30% in three years and a whopping 84% in 5 Years.
Even as recent as Quarter 4 in 2018 we saw a “crash” with S&P losing 13%…give it 12 months and the markets are 26% higher so the gains were double the quarter loss.
As Emotion drives markets, this is why they have been oversold and to a certain extent manipulated by traders. Ironically if you look at the performances, its the Shanghai exchange which has only suffered half the losses of the others, perhaps the lack of a true free market is the reason.
So we have had a bloodbath and like any manager / analyst I cannot say for sure if we have seen the bottom of this market or not. However there has definitely been a much calmer few days trading than we were seeing a couple of weeks back.
The VIX measures volatility in the markets. On 16th March, the VIX was 83, which means that on 16th March 2021, the markets could be anywhere between 83% higher or 83% lower. Already the VIX is down to 53, so an apparent fear that existed where all market gains for the last 31 years could be wiped out in 12 months has been firmly put in its irrelevant place. We also trade around 6% higher than the market mid month low.
The effect on the economy around the world is there for us all to see. Unlike 2008 /09 though , Government have the opportunity to be proactive oppose to 2008/09 where they were forced to be reactive.
Media is everywhere and quite frankly in most cases very unhelpful where facts can be so easily distorted and this of course plays into people’s decision making.
What is factual though is that company valuations are at their lowest in years. As awful as this pandemic is to those who are affected, the macro situation is that the world’s population continues to increase at the same rate is has for the last couple of years, around 170,000 a day.
Of course some sectors of the market are going to be more affected than others, McDonalds will sell less burgers next month than it did in April 2019, which will affect their bottom line /share price. Other industries may actually come out stronger. Regular readers know that Unilever is often my poster child. As a company that sells a lot of soap and we are all washing our hands more, what will that do to their bottom line? What about tech. Two giants here, Microsoft and Amazon have actually increased their share price slightly in a quarter …..makes sense, people online more and logistics around working from home…not to mention Healthcare…..This is where having your investments well managed comes into play.
It is suggested that only about 20% of people make money in the stock market despite over the longer term always seeing an upward trend. This is because despite all the well founded advice that is available about not catching selling on the way down (catching falling knives), buying low, going against the herd mentality, it is still extremely difficult to convince people this works. The 20% are buying now, the 80% want to “wait and see what happens”
Quoting the great Warren Buffet’s investment advice, we should all be “Fearful when others are Greedy and Greedy when others are fearful” Certainly in my lifetime I have not seen a situation as fearful as this…so get greedy and get in touch……….