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New Covid strains biggest threat to market stability, say advisers

New Covid strains biggest threat to market stability, say advisers

New strains of the coronavirus and an uneven global vaccine campaign are the biggest risks to market stability, according to financial advisers.

A survey by Quilter found for 46 per cent of advisers the two issues around Covid-19 were their biggest concern regarding market stability, with 26 per cent saying the biggest threat was economic growth failing to materialise after the end of lockdowns.

Of the 117 advisers surveyed last Thursday (May 20) 10 per cent highlighted the country’s debt burden as the biggest risk to market stability, with the same number flagging a policy error by the central bank.

Just 8 per cent pointed to the bursting of the tech bubble as their main concern.

Paul Craig, portfolio manager of the Quilter Investors Cirilium range, said: “It is interesting to see that financial advisers are most concerned with new variants and an uneven global vaccine rollout knocking markets off course, although these are ultimately two separate threats.

"So much is unknown about the new strains of Covid, so it is understandable if fears of another economic lockdown persist just as things begin to look up.

“Should the vaccine rollout break down, or the variants manage to mutate to fight back against it, then the economic picture will no longer look so positive.

“For advisers, it is clear diversification is more important than ever given this dual threat, and the existence of a number of risks out there just now. A focus on quality companies will see portfolios weather any storm that does come, while also benefiting in the post-pandemic economic environment.”

For Darius McDermott, managing director of Chelsea Financial Services, new bad Covid news was also the number one concern.

“Clearly Covid is still the obvious market hangover, but slightly perversely in the second and third waves we didn't really see any market volatility," he said.

“Inflation is also worth monitoring - a healthy bit of inflation is fine but if it were to get much further than 5-6 per cent and we started to see wage inflation across the globe, that would be a problem."

He added: “From an investment point of view, I wouldn’t be advocating selling equities or putting 30 per cent in cash because people did that last year and it was wrong. The gentle upward market trend could continue for years.

“[But I would advise] having some sensible diversification, being balanced and maybe keeping a little bit of cash in case of some drawdown in markets.”

sally.hickey@ft.com