INVESTMENT UPDATE

Monthly review end-February 2020

  • 06 March 2020
  • 5 minutes

Market participants are reacting to the spread of the coronavirus, COVID-19. The reactions by authorities to the spread, including travel bans and factory shutdowns, have had a significant effect on sales, deliveries and employee attendance. The restrictions have been the most stringent in China where the spread of the virus appears to be slowing. The hope is that a lighter-handed approach can be used elsewhere that balances the imperative to protect human life with the need to try to carry on with day-to-day life.

UK

In the UK, equity prices fell, spelling what appeared to be the end of the stock price recovery that following the decisive general election result in December. The value of the pound has fallen as investors have moved money into perceived “haven” investments such as the dollar. That has helped to slow the rate at which export-focused companies’ share prices have fallen. Meanwhile, the UK government’s tough stance on Brexit negotiations has unnerved investors, leaving medium-sized companies more vulnerable to nervousness among investors.

US

US equities began February strongly with the S&P 500 setting a new record high. This was spurred by robust jobs data and rising wages, as well as President Trump’s widely predicted acquittal in the final impeachment vote. Since then, coronavirus concerns have taken hold and stock prices have fallen very sharply.

Elsewhere

The virus and travel restriction implications have led to stocks falling across other geographical regions as well. The eurozone economy was already struggling to deliver growth, and this has been further hampered by the implications for travel and business activity. Italy (where the most cases in Europe have been recorded) and Germany (which has the highest volume of exports) have suffered particularly badly. Stocks across the Asia Pacific region had a tough time. However, the stringent action by Chinese authorities has led to hopes that the contagion rate, at least in Wuhan where it began, has begun to decline. However, the hit to economic production and growth is likely to be significant.

Bonds

As investors pulled money out of higher-risk rated investments such as shares, they found lower-risk rated opportunities to park it. This pushed the demand for and prices of bonds up. When the price of a bond rises, its yield falls. So it was no surprise to see yields on US, UK and German government bonds falling sharply. With yields already very low, investors wanting income-generating investments still had some appetite for bonds issued by companies, so those bonds didn’t suffer quite as much.

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