So, it’s been a nasty week in terms of stock market performance particularly in the UK and Europe as we have seen some of the biggest falls since March.
Covid-19 has continued to spread, and case numbers are increasing. This has resulted in the markets fearing more nationalised lockdowns.
Even as I write, things are moving fast with France just announcing a second national lockdown until at least the end of November. Germany have also announced a less severe national lockdown with restaurants, bars, gyms and theatres all closing.
So, at the moment we can’t get away from talking about Covid-19 and therefore I thought we would run a special Covid update this week. This is not about giving an opinion or taking sides on the lockdown debate. This is to show you some of the data that our investment team have been looking at and how markets may react.
So, first of all, looking at the cases numbers it’s clear Europe is the region suffering right now with cases declining in other areas of the world like south east Asia.
What’s also clear is that the impact of the second wave in Europe and particularly the UK is not having as an immediate impact on the hospital admissions and death rates.
There are a couple of reasons for this.
- We now know more about Covid-19 and therefore are better placed to treat it.
- A number of treatments have proven successful in reducing deaths.
- The virus may have mutated into something slightly different.
Now it’s still early days and there is of course a lag between positive cases, hospital admissions and deaths.
This week SAGE scientists said this week that this second wave could be more deadly than the first with a ‘lower but longer peak’.
So why is it places like China, Hong Kong, South Korea, New Zealand and Australia have been able to keep case numbers very low?
Well, there’s a number of reasons, but the likes of China and Australia have carried out pretty tough lockdowns (including the closure of borders) for longer periods and aim to try and suppress the virus until it’s virtually gone.
Positive cases of Covid-19 increased quite quickly in Australia as they entered their winter. As they come out of winter, a 111 day lockdown has been lifted in areas like Melbourne.
So, is lockdown the secret?
Well of course it’s not so easy just to go for a complete lockdown of society. There are huge economic impacts to this. There are also health impacts due to people not getting treated for other conditions and suffering from mental health issues to due isolation. Then there’s the educational impacts of children not being taught as effectively.
Interestingly there does not appear to be one measure that works best at suppressing this virus. It’s a combination of things. Which is why it’s so hard to open up the economy again.
One thing that is interesting though is that the severity and strictness of a lockdown does not always correspond with a bigger hit to the economy.
If we look at a place like China we can see they have had some of the most severe lockdowns. Whereas the likes of the UK has been slightly milder in comparison.
But when you look at the economic impact of Covid the UK has suffered far worst.
Now there are some reasons we can clearly identify for this.
The UK economy is much more services based than China. And its services that have been so disrupted from Covid’s impact. Think hotels, leisure activities, wining and dining. Whereas China’s economy is much more focused on industry.
Of course, the more Europe suffers, eventually this will impact China as Europe won’t be purchasing as much from China.
So how do we get out of this and what do markets think?
Clearly there is a lot of hope pinned on a vaccine and progress is being made.
But with the virus still so new and with so much more to learn about it there is no guarantee a vaccine will work and work for a long period.
There are 7 known Coronavirus that can infect humans including the common cold and a cure has never been found.
The stock market crash back in March was caused by the uncertainty of Covid-19 and how lockdowns would impact economies. They re-grouped once they thought the worst was over and have been recovering ever since.
A return of full national lockdowns had not been priced back in and therefore because they are happening it is causing the stock market to re-adjust again.
Whatever happens next remember markets are forward looking. They will be focused on what they see happening in 12-18 months’ time.
Now as always is the time to stick to your financial plan. Do not panic if you see markets fall. This will always be a temporary adjustment. If you have cash available, it may be a good time to invest and pick up some shares at a lower price providing you are clear on what you are getting into. Of course, the markets could always fall further.
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Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.
