FI NA NCE
“Active’s advisers have
completed more than 1,300
face-to-face client review
meetings in the last 12
months alone”
risk. When the system failed, it paralysed
global activity. Covid-19 is a massive
external shock that’s caused a worldwide
government-enforced economic downturn to
help protect populations. Consequently, this
has put many companies at risk of default,
hence the panic selling that equity markets
have experienced recently.
In 2008/9, there was no real agreement
on what the correct policy response should
be. The huge bailouts to banks caused
unpopular public opinion; people thought
it was unfair that those responsible for the
risks taken should continue to live luxurious
lifestyles. Today no one is objecting to the
vast sums of money the government is
committing to support those suffering as a
result of the economic activity restrictions
imposed.
The chancellor has pledged measures
to help workers and businesses during
the pandemic, including protecting 80% of
incomes for those employees who would
have lost their jobs (known as furloughed
workers), an increase in sick pay, enhanced
benefits for the self-employed and
deferring VAT and business rates for certain
businesses. More measures will surely follow.
It’s clear that governments across the
globe will borrow heavily from the worldwide
bond market. Interest costs are currently
around 0% and will stay there because
central banks will print the money that
governments can pass on to their people. In
the developed world this is almost unheard
of but we have no choice.
And other issues…
We have the Brexit trade deals to
negotiate this year. Nothing will change
immediately as the UK will still be bound
by EU rules until December 2020. After
that, things are a little more uncertain.
Trade negotiations have begun with the
EU, but Covid-19 will have an impact and
may lead to Boris Johnson’s deadline of
ensuring a deal is in place by December
2020 being put on the back burner.
Balancing the EU trade deal with the
United States trade deal will also take
some manoeuvring.
The next EU summit is planned for
June, when progress on the negotiations
will be measured and we could request
an extension. Therefore, investors’
confidence could be impacted further
should the negotiations be unsuccessful,
which could affect stock market
performance. Markets will, therefore, be
very sensitive to any progress updates, or
lack of them.
We also had Russia and OPEC
(Organisation of the Petroleum Exporting
Countries) disagreeing over oil prices in
March which, again, didn’t help market
confidence, with oil prices down to
unthinkable levels only a few months ago.
Markets will also be influenced by the
US presidential elections in November.
What does this mean for you as
investors?
The budget on March 11, along with the
major actions already mentioned, gave
us further evidence of the government’s
vision of how they’ll fight the economic
crisis, but the hope is that we start to see
the first signs of the virus coming under
control very soon.
This should provide fund managers
with potential investment opportunities
for their clients’ portfolios as some assets
may well be substantially undervalued.
The government’s strategy can bring
challenges further down the line with
a recovery boom forcing bond yields
and therefore inflation substantially
higher than we’ve seen in recent years.
However, for the economy as a whole this
may not be a bad thing.
This is an extreme situation where
extreme measures are required,
effectively ‘mothballing’ the economy to
ensure it’s in a position when normality
eventually returns.
Of course, we’re in regular contact with
our investment partners to ensure our
clients’ investments are well managed
during these uncertain times.
Given how quickly markets and the
economic outlook can change, it’s
imperative that you regularly review your
portfolios to ensure they remain suitable
to your needs, that you’re comfortable
with the risk and fully aware of how they
are and may perform moving forward.
Our close relationships with clients
and investment partners reaffirms our
ongoing commitment to regularly do just
this, with Active’s advisers completing
more than 1,300 face-to-face client
review meetings in the last 12 months
alone.
The days when you simply filed the
annual statement in a drawer are gone!
There’s an abundance of knowledge out
there to help you. You just need to ensure
you are taking it from the right sources.
The value of your investments can
go down as well as up and you may get
back less than you originally invested.
If you would like to speak to someone about this
article or any other financial planning needs, please
contact Active on 01642 765957.
activefinancialplanners.co.uk
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