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Investment Update - Time Matters

Investment Update - Time Matters

Monday 11th May 2020

As we get older time goes more quickly and yet in lock down time seems to have slowed and the hope is that the world will be a more mellow place, once this is over. We struggle with weeks and probably months of being curtailed, but this should ease in time, so imagine as we celebrate 75 years of Victory in Europe tomorrow how it must have felt to face years of the threat of invasion with 450,700 approximate UK casualties in World War II. Bomber Crew for example had a 50% survival rate.

Central Banks and Governments have acted promptly to bridge the chasm that will be created economically by Coronavirus doing whatever it will take. That chasm this morning has been estimated at a reduction of 14% in UK economic activity (GDP) this year by the Bank of England. In 2019 UK GDP was £2.21 Trillion so an estimated fall of £0.3 Trillion. A client said yesterday she tried not think of how much a Trillion is as the packages announced have been colossal.

Take the UK £645 billion by the Bank of England in Quantitative Easing plus £330 billion Government package announced to date, for example the £13 billion write off of the NHS debt. In the US it has been a $2 Trillion package announced. As you can see the impact of the world economy basically grinding to a halt is huge and needed such an equal response. To put it in the perspective of time:

  • 1 Million seconds = 11.5 Days
  • 1 Billion seconds = 31.7 Years
  • 1 Trillion seconds = 31,710 Years

The good news is that markets have reacted favourably through April with the UK FTSE100 index gaining a healthy 4%; its second-best month in 10 years and in the US the Standard and Poors index gaining 12.7%, its best performance since 1987.

However, there are headwinds, as indicated by the economic outlook in the UK announced this morning and the unfortunate threats now emanating from Trump raising the prospect of new tariffs on China, as punishment for its role in the Covid 19 pandemic. In addition (and against our hopes in an earlier bulletin) trade negotiations seeming to stall between the EU and UK. Indeed, the EU struggle to agree their Government led stimulus package and who foots the bill, which is baffling at such a time of crisis.

So, a possible bumpy couple of months but the important aspect is the medical time scale of a vaccine, with a lot of hope on the human trials that have begun on the University of Oxford vaccine. Time is again key and ironically the University news on the subject states it will depend on the numbers, so if transmissions remain high in the community could be as little as 2 months and if low possibly 6 months, in order to have the data in the research needed. Astra Zeneca have partnered with Oxford University to manufacture and distribute the vaccine and they feel they will know if successful by June or July. This is good news that this partnership will mean actual production won't be delayed between approval and production. Treatment of
symptoms with antiviral drugs such as remdesivir are also important but the vaccine is no doubt key.

Stock markets look to the future and therefore take account of any medical good news and the gradual easing of restrictions that accelerate the economic recovery. As restrictions ease there is an expectation of the global economy largely recovered by the end of 2021. Markets will therefore progress but will be much slower and more volatile than in April.


The value of investments can fall as well as rise and is not guaranteed.