In the last few weeks investment markets have seen a dramatic return to extreme volatility, with global equity markets suffering large falls in value. We continue to monitor events, but we thought it perhaps prudent to at least give you an idea of our thoughts at this time.
Recent volatility has been triggered as a result of an increase in fear for the global economy as a result of two key events. Clearly the first and perhaps most significant is the widespread impact of the Coronavirus and how this will affect each country’s economic output. Essentially the thinking being that if we are all required to self-quarantine, this will have an impact on our working environment, our production within the work environment and ultimately what we spend on goods and services. This in turn raises the fear of a global downturn at an economic level.
In addition to the Coronavirus issue, we have the separate but in fact totally related turbulence in the oil markets. Recently the various oil producing countries and regions failed to agree to reduce the production of oil to cater for a slowing demand. Coronavirus is creating this slowing demand as we all travel less either internally or on a global basis. This scenario creates an oversupply of oil and the net result is a crash in the oil price. This then has an immediate impact on companies and economies that are heavily geared towards oil as a sector.
So, whilst we have a good idea as to why things are as they are, what we are not able to do is predict where things will go from here. Where extreme fear has taken over from rational thinking it would be foolish to suggest we know what directions markets will take in the next few weeks. Clearly the impact of the Coronavirus has to run its course and perhaps only then will we know what directions markets will move in. It will also be critical to see what response we have from the government so this year’s budget will no doubt be dominated by this topic and this will need to be covered separately. It was however interesting to see that the Bank of England has immediately reduced interest rates by 0.5% as a means to help stabilise the economy.
In these circumstances it is our belief that not panicking is the key. We believe that “time in” the markets is the most important factor to long term growth and any attempts at “timing” a market are exceptionally risky and not to be advised. In effect, where investors have longer term objectives in mind, they ought to be able to leave their investments untouched for the foreseeable future, so we believe that sitting tight and riding out this current period of volatility is the right option. For those with shorter term needs, who may require access to their investments in the next year or two, you may want to speak to take more immediate specialist advice.