An update on Covid-19 and market commentary

As we enter week three of lockdown the Prime Minister went into hospital and The Queen broadcast a unique special message. Lockdown seems to mean different things to different people in the UK but in France, which is in week four of lockdown, you must have a paper declaration when going anywhere (including going for walks) and this is heavily policed with large fines being issued. Also, only one person allowed out to shop per household, and only for essential goods. It is likely that cases in the UK will peak over the next two weeks and, sadly, we can expect further loss of life and personal tragedy.

The key issues are containing the spread of the virus by locking down and preventing social contact or gatherings, testing and the provision of a vaccine. We are attempting to deal with the first step but the long term solution must rely on the science on steps two and three.

Meanwhile, many businesses have come to a grinding halt whilst others, particularly in the service sector, are adapting to greater online activity and other working practices. Recession is inevitable but for how long and how deep? The global economy was in relatively good shape before COVID-19 really hit and the initial rapid sell off was exacerbated by the additional wild card of a depressed oil price as a result of a price war between Russia and Saudi Arabia. Unemployment figures in both Europe and the USA have also increased sharply to reflect the shutdown of many businesses.

Governments throughout the world have allocated enormous resources to keep businesses afloat and able to respond when we get through this and return to a more normal environment, although it is not clear what the new normal will look like. Some sectors will suffer long term structural damage but other sectors and businesses will emerge. Governments can influence supply but are less able to influence demand. Such a level of money committed into the economy would traditionally be thought to be highly inflationary and in the past this might be helpful to manage down the cost of debt. The other management alternatives are increased taxation and austerity, neither of which sound appealing.

Attention in the West has turned from Italy and Spain to the USA where a pandemic was not initially regarded as being serious as politics, and it is also difficult for the Federal Government to impose nationwide lockdown. The largest economy in the world is now suffering and that has much more serious financial consequences than what happens to the economies of Italy and Spain, or even the UK. It won’t be all over by Easter as Donald Trump initially claimed.

Most investment commentators believe that recovery will happen and it is more about the shape of that recovery. Will it be V shaped or a more protracted U shape.  There are those who forecast material recovery in 2020 back up to 95% of previous levels but there is also likely to be less globalisation in future.

If you are investing for the long term there are clearly great opportunities arising from substantially cheaper valuations, and if you are already invested the advice is that recovery will happen and you should avoid losses by realising assets at these levels. As ever, a balanced portfolio to include global equities, fixed interest, property and cash to match attitude to risk is the best way to preserve and grow capital.

Lycetts continue to work from home and are happy to speak to clients on the telephone or by way of video link. We were using ZOOM but our IT department felt that this could be insecure compared to Skype. Apparently Downing Street use ZOOM so we could perhaps hack into that to find out what is really going on!

Finally, The Chancellor delivered what became an emergency Budget on 11 March. While most attention was paid to the provisions made to tackle COVID-19 for workers and businesses, other changes were also introduced. We saw a dramatic cut to the entrepreneurs’ relief lifetime limit, while the pensions annual allowance charge saw tapering thresholds altered to meet concerns of higher earners.

Please click here to view our 2020/21 tax tables. These can be downloaded and/or printed if you would like a copy.

As always, if you would like to speak to us about any of the above or would like further help or advice, then please do not hesitate to get in touch with your usual Lycetts contact.