Advice for investors
- Monday, March 16, 2020
Last week was the worst week for stock markets since 2008. The FTSE 100 index has in one month fallen in value by 27%. It stood at 7452 on Valentine’s Day and by Friday 13th March was down to 5366.
Investors have throughout the week been seeking guidance on how to react as the outlook for the global economy has become increasingly bleak.
Our view is that we have not yet hit the bottom of this Coronavirus crisis and that the falling oil price due to oversupply in markets will further drag down oil company stock. When we do see a turn around, low oil prices will be viewed as the equivalent to a tax cut in the broader economy.
For investors with an investment time frame of 5 years or more, they should be encouraged by the fact that markets tend to recover from low points quite quickly. Since 2000 all world epidemics have seen markets return to positive positions within six months. The only exceptions were the Zika virus in January 2016 and Ebola outbreak in October 2018. The reason for a slower recovery then was due to interest rate rises by the Fed not the impact of the virus.
Since 1969, downward markets have lasted an average of 385 days and lost on average 37% of investor’s capital. The average up markets has lasted an average of 1482 days and returned investors an average of 140%.
For individuals who now have surplus cash and an investment horizon of 5 years, then the next few weeks could present the best value buying opportunity for global stocks since 2009. We are actively following the moving averages of each global market for signals that an upward trend has begun. On this point, I would suggest you take look at the work that my colleagues Tomiko Evans and Mike Buckle have been doing within our new sister company Crossing Point Investment Management.
For investors with short term needs or are currently drawing income from their portfolio, we would suggest if possible, put off withdrawing money from funds if you can. If you can use cash rather than funds to support purchases or income if only for a temporary period then this will prove beneficial. If you wish to reduce income levels for a temporary period then please let us know.
For investors seeking income and are disappointed with the rates on cash particularly after the 0.5% interest rate cut, you could consider a UK equity income fund that invests mainly in FTSE 100 stock. FTSE 100 companies have on average fallen 27% in value recently but do provide an attractive dividend. This percentage of income to capital has risen on recent stock market falls and stand with some companies as high as 8%. Dividend income is therefore currently available at a discount but if trading is weak dividends may be cut.
As far as selling out of investments is concerned it is too late. The best strategy is to ride this storm out. Markets will recover, they always do.
Chris DaviesChartered Financial Adviser
Chris is a Chartered Independent Financial Adviser and leads the investment team.