Pandemic: an outbreak of a disease that occurs over a wide geographic area and affects an exceptionally high proportion of the population.
The UK’s FTSE 100 index, which we use for no other reason than it is widely familiar, has dropped by 12.3% since last Friday’s close. This is the fastest retreat into correction territory (that is, a fall of over 10%) since the Great Depression. The World Health Authority has labelled coronavirus a public health emergency, but, not yet a pandemic.
At such a time, our thoughts and well-wishes are of course with those suffering with the virus and their relatives and carers. With regard to the impact of coronavirus on financial markets, the most sensible phrase we have heard is that we are in the midst of a medical crisis not a financial crisis. The distinction is key. The virus is exogenous to the global economy – attacking it from outside. To this extent, in our view, it is less of a threat that the Global Financial Crisis, where the issue was internal to the global economy. Indeed, to us coronavirus also feels a less potent threat than the 9/11 attacks. In that instance we had to calculate whether major terrorist attacks were poised to multiply into a religious war on what had become in the prior 10 years, the global economic system – capitalism.
Now, everyone is on the same side, looking to get in front of the health emergency. Yes, it could get worse, perhaps much worse. In our view, however, that is what stock prices are now discounting. With interest rates close to zero, government bond yields at record lows, major stock indices, such as the FTSE 100, offering a yield of c5% are very attractive in all but the short term.
Heronsgate Capital LLP is an appointed representative of Dart Capital Ltd which is authorised and regulated by the Financial Conduct Authority registration number 137569. Heronsgate Capital LLP is a limited liability partnership registered in England and Wales with registration number OC430243 and registered office at 28 Queen Street, London, EC4R 1BB. This document does not constitute advice or a personal recommendation or take into account the particular investment objectives, financial situations or needs of individuals. This document is not intended for further distribution. This document has been prepared with all reasonable care and is not knowingly misleading in whole or in part. The information herein is obtained from sources which we consider to be reliable but its accuracy and completeness cannot be guaranteed. No responsibility is taken for any losses, including, without limitation, any consequential loss, which may be incurred by anyone acting on information in this document. The opinions and conclusions given are those of Heronsgate Capital LLP and are subject to change without notice. The value of investments and the income from them are not guaranteed and can fall as well as rise and clients may not get back their original investment. It should be remembered that past performance is not necessarily a guide to future performance. Where investments have particular tax features, these depend on the individual circumstances of each client and tax rules are subject to change in the future.
