IN March, when global investment markets were like Zebedee the hopper after four hours on an après ski, we mentioned a number of obvious shortcomings in the market, along with opportunities.
As is always the case, markets look ahead no more than six months for positive data, and respond initially with knee jerk movements as those who can make money out of volatility (whilst creating more volatility) do so.
In the last few days, markets have given back some more of their gains, but the UK market in particular has had a tough time.
Everyone hoped the very much-unloved UK market would have that bounce after the election, but it turned out to be more of a squelch.
The FTSE250 is down 17.5 per cent from the morning after the election, sterling is down 8.2 per cent against a beleaguered euro, 7.7 per cent against the dollar, and 6.39 per cent against the yuan.
As we said back on March 16 in the column ‘Clarity through the noisy market turmoil’ (transpired to be the low in the market), you will have no warning of a turn in the market – there will be one – so trying to time that is like drinking prosecco on the above hopper.
Calculating risk and positive return is very difficult. The UK Covid mortality rates are wholly flawed and hard to use as a barometer of anything. Management of lockdown has been extraordinary. Most stayed at home out of the petri dish, but looking at the traffic in around London, it was clear from early on, that a now cleansed petri dish with lots of people running through it was a doomed strategy.
Will we have a second wave and will it last?
At some point, there will be a downward headline but at ‘some point’ afterwards, there will be a surprise, good news. You will be too late to ride that wave upwards if you are out of the market.
Those who exited the market through fear in March will have missed out on a hefty jump of over 42 per cent on the FTSE250’s peak on June 5. It has given up some of those gains since (6.7 per cent), but what is the future?
As an unloved asset class, UK domestic stocks have had everything loaded against them for four years. Markets do not like indecision, and there has been nothing but that ever since.
UK GDP (a broad measure of the economy) fell 20.4 per cent in April, effectively erasing 18 years of economic growth. One week later, even with all that Armageddon news coming through, the FTSE250 had risen almost every day and was up 3.57 per cent.
Within the service sector, distribution, hotels and restaurants fell a staggering 37.3 per cent.
The key to managing your money (or having it managed properly) is to ensure you have the correct manager making their way through such a storm. The tide will come in and out, there will be neap and spring tides, there will be great waves and there will be doldrums. It is simply about managing those and keeping that cool head.
Remember these headlines are a snap shot of PAST activity.
At that second, the Bank of England announcing GDP could fall 25 per cent in the second quarter is the equivalent of the ‘great frost’ of 1709, which I can barely remember.
Looking forward however, as lockdown eases, there is undoubtedly going to be a V effect in certain parts of the economy where the elastic band has been pulled back too far.
Manufacturing and services have already shown a sharp rebound in May for the monthly Purchasing Managers Index (effectively a mirror of economic growth).
Other examples relate to the global community mobility report. Like it or not, its Google-stalking you and working out where you are (in shops, supermarkets, cinemas, hardware stores etc).
From that, we can see the UK was hit much harder than other countries in terms of activity, but has gradually picked up since April, leading to managers believing we are passed the trough.
Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. Ask any investment question by calling 028 6863 2692, email firstname.lastname@example.org or visit www.wwfp.net.