Caronavirus (COVID 19) Infects Global Markets
At SuisseRock we have been preparing for a downturn for over 6 months now with many of our clients having taken profits, increased cash exposure and allocation to protected assets for a large proportion of their portfolio’s. We were confounded by the continuation of the rally through 2019 and into 2020, with, in our opinion, valuations on most developed market ( with the exclusion of China and some associated Asian markets ) looking unattractive.
Last week reversed much of the gains from this extended rally in just one week, taking global markets back to 2017 levels. Whilst we could not have foreseen the trigger being a global health scare, Coronavirus has set the stage for a slowdown that might well bring some value back to US and European stocks in a dramatic fashion.
The fear in global markets is largely due the unknown nature of this virus and indeed the unquantifiable effect it may have on global trade and ultimately projected GDP growth rates across the globe.
Today has seen the resurgence of a familiar support for markets in times of turmoil. The potential support of central banks, in particular the Fed and the ECB. The prospect of loosening central bank policies and perhaps renewed rounds of quantitative easing is, for now halting further drops in equity values with some of the value revealed last week being bought back into.
We would question just how much fire power the central banks have left in their arsenal’s with rates near all time lows debt levels also nearing record levels. Printing money or indeed introducing negative rates is always an option that will support markets in the short term, but a what cost to localised economies in the longer term. These measures also leave the central banks with no tools left to fight any other unforeseen issues that may still be to come. A dangerous position and one these politically exposed bankers will be painfully aware of.
How SuisseRock prepared for the sell off
SuisseRock’s use of protected structures in favour of direct equity holdings or ETF’s for at least a proportion of our clients portfolio’s, has ensured our clients can sleep a little easier as indeed can we during this current volatility. Advised higher cash holdings and increasingly regular realisation of profits has also ensured our clients now have available funds to take advantage of these reduced prices.
As for timing of this positioning towards equities is key and whilst no one can accurately predict the markets at the best of times, we believe things are likely to get worse before we see a sustained move back to risk assets, particularly from the institutional side.
What to do now?
A healthy mix of Protected Structures along side higher cash holdings, and staggered re investment back to Equities via ETF’s will continue to limit downside whilst providing healthy protected returns in a very cost effective manner. This, for now, is our advice to our clients and we feel confident will continue to provide our clients with solid long term growth regardless of market conditions.
With market volatility comes opportunity. It is times like these that we need to act in order to maximise our portfolios returns. The significant sell of in global markets means we can enter the market in a much more affordable manner. If you need any advice please feel free to contact us by completing the below form.