Jeff Lewis, director of Edinburgh based IFA RobMac, reflects on what has happened in the market over the last 7 weeks and considers what the future holds.
After falling 34% from their peak this year, global equities (as measured by the MSCI All Country World Index) bottomed- out on 23 March and have rallied by 25%.
Clients that have remained invested have seen a bounce back in their portfolio values, whilst perhaps not recovering all their losses have at least reduced the impact of the downturn. Although there will continue to be volatility in the next few months there would appear to be light at the end of the tunnel .
GDP contractions have led analysts to revise down global Earnings Per Share to -12% for 2020 so far. If equities are to sustain their recent rally over the longer term, there needs to be a fundamental improvement in growth and for that to happen governments need to ease back on lockdowns.
As we now see from all over the world this is now the new reality. In Germany, small shops and car dealerships (an important industry for the country) resumed business from 20 April, while schools for older children are opened on the 3rd of May.
The UK government will start a partial reopening of the economy from 12 May and President Trump, with an eye to the upcoming election in November, is upping the pressure on state governors to loosen the lockdown.
A V-shaped economic recovery will be possible if restrictions are lifted and if we can avoid the ever-present risk that a second coronavirus wave stalls this re-opening.
The message is “steady as she goes” as we are not out of the woods by any manner of means but with Policymakers aware of the need to support industry and employment whilst reducing the spread and impact of the virus perhaps we are over the worst of this epidemic and its effects on us all.
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