The coronavirus crisis continues to throw up more questions than answers.
In this article I address a series of questions that both advisers and investors have been grappling with as the pandemic continues to unfold, ranging from where we see value, to which market is best positioned to rebound.
Which equity markets offer the best value to investors?
To answer this question, we ask you to cast your minds back to (dare I say) the EU referendum.
Nearly four years have passed since the day of the vote back in June 2016, and this period has been overshadowed by uncertainty.
There is no doubt Brexit uncertainty interrupted the level of investment into the UK, and it was not until the most recent general election that we have had any real idea around how and when the UK would be leaving the EU.
During this period, some managers maintained an underweight position to the UK.
Indeed, since the Brexit referendum to the end of 2019, the UK market (FTSE 100) was up just 22.9 per cent compared with the US market (S&P 500), up 58.6 per cent over the same period (source: Morningstar).
However, immediately pre-pandemic some people allowed themselves greater optimism on the UK outlook, which by that point looked relatively undervalued, and as Prime Minister Boris Johnson would put it, there was the chance to ‘unleash Britain’s potential’.
The pandemic has not changed my opinion on the UK market relative to the rest of the world, and I feel the investment case has been strengthened further due to coronavirus-driven sell-offs, which have presented opportunities to enter the market at significant discounts.
Have we seen the real fall, or was mid-March just a preview?
This is still somewhat of a crystal ball question.
However, there is no doubt that much of the panic selling seen throughout February and March was irrational.
Markets have steadied over the past few weeks as investors have had time to take a breath and reassess the longer-term impact the virus is likely to have on markets.
For the time being markets have looked past much of the negative news (such as the unemployment figures, the International Monetary Fund’s global GDP prediction of -4 per cent for 2020, and the first negative quarter of growth in China since records began); rather focusing on the announcements on imposed lockdowns and when these might be lifted.
This indicates that many feel the recovery will begin as soon as some sort of normality resumes.
In recent weeks there have been positive signs that the contagion is slowing and, in many areas, is now under control. Indications of relaxing certain lockdown restrictions have certainly allowed markets to rally.
We expect more positive lockdown news to provide further support to markets.
One thing for sure is volatility will remain at elevated levels in the short to medium term as there are still many known and unknown obstacles to overcome before normal service can resume.