“There must be some kind of way out of here”

Published: 7th April 2020 (3 Min Read)

The improving weather is causing people to long for escape from the confines of home but, as Jimi Hendrix went on to say, “there’s too much confusion, I can’t get no relief.”

We have not encountered a crisis of this nature previously, so what will enable us to become more confident about markets and investing in them?

First, it helps to take a long-term view, rather than seeking to time the market to perfection which is not feasible. We need to see stability in the global financial system, a sense that economies are no longer in free fall, and an improvement in the understanding of, and treatment for, Covid-19.

Second, we take a relatively risk-averse approach to investing, and thus diversify across different types of assets, which have varying financial sensitivities. By looking too for “quality” investments, with strong finances, and a good competitive position we try to reduce the financial risks of getting our timing wrong because such investments should be able to weather the storm.

Opportunities do not all arise at the same time, so we try to buy what we like when a good opportunity appears. We don’t always get such opportunities, but some have appeared, and others will. This also means that we are not seeking only one opportunity to buy.

As we have written previously, we believe that the various central banks and government policymakers have been doing broadly the right things to bring stability to the financial system.

It remains to be seen whether the help for individuals, households and businesses has been implemented in such a way that it reaches them in a timely fashion, and whether it will be adequate. The intent is there, but the longer we are in “lock down” the more damaging this period will be and the more difficult it will be to compensate for it.

The economic statistics for the first half of this year will be terrible, but when the turning point arrives the recovery should be quite strong. The sooner it comes, the stronger it is likely to be.

For the turning point to arrive we need to see a sustainable improvement in the data on Covid-19, primarily in the numbers of those infected, and in the mortality rates, but we also need to gain comfort that, as countries emerge from “lock downs”, there is not a rebound in infection rates. Countries should therefore exercise care in how they approach this, and all eyes are on China and South Korea.

Europe may be past its worst point, but reports from America remain grim, and repress any sense of general optimism at this stage.

Improvements in tests for infection and immunity will help build confidence, and there may be good news on this front in the coming weeks. Vaccinations however are likely to be more slowly developed.

Time is a healer, but let’s hope it doesn’t take too much time.

“All along the watchtower, (we are keeping) the view”