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In the two weeks that have passed since the Special Market Update of 3rdMarch, the world has changed dramatically.  To paraphrase the Prime Minister, we are now on a war footing against a silent but potentially deadly enemy.  As the crisis has escalated at an alarming rate all over the world, panic has ensued across global financial markets.  At the time of writing, the FTSE 100 Index has fallen by a staggering 33% over the past 4 weeks, with similar sized declines in other major stockmarket indices.  Thankfully bond funds and property funds have proven more resilient so far, meaning that diversified portfolios have avoided the full scale of stockmarket losses (albeit all portfolios have been adversely affected).

We have been following developments closely and will continue to do so, but our advice to clients generally remains the same, i.e. don’t panic. It is entirely understandable that some people will feel nervous about a large drop in the value of investments, especially with the heightened sense of anxiety that has gradually swept across the nation.  Concerns about the growing health crisis have been compounded by fears of a global economic crisis, which will surely follow if appropriate measures are not implemented by Governments and Central Banks.  On that point, the scale of global financial support announced in recent days is unprecedented, however we feel that further significant intervention will be required to ensure that we avoid a severe recession.

Based on the rhetoric of world leaders, we expect the drastic economic measures required to be forthcoming.  In some ways this is similar to the 2008/9 financial crisis, when the banks were deemed too big to fail and had to be bailed out, whatever the cost.  The key difference here is that it is not just the banks or big business that is under threat, but hundreds of thousands of small and medium sized businesses and millions of self-employed individuals. “We are all in this together” may have been nothing more than a political soundbite used during a previous General Election, but this week it has become a truism.

I’d like to borrow another political soundbite that the Chancellor has repeated frequently this week – “whatever it takes”.  Time will tell if the Government is prepared to follow through on this pledge, but we really don’t see how they can fail to do so. The ramifications of an economic depression at a time of a global pandemic are simply too serious to ignore. We therefore expect to see the required amount of stimulus to maintain a degree of economic stability throughout the health crisis, so that the economy is in good shape to bounce back once the crisis comes to an end.  If that proves to be the case, there is every chance that investment values will rebound sharply.

We are certainly living through a period of unprecedented uncertainty, both socially and economically.  We want to reassure clients that the situation will improve in due course, but unfortunately we can’t say when that will be.  We also cannot rule out that things will get worse before they get better. But they will eventually get better and it is usually the case that the day is darkest before the dawn.  It is therefore important for long term investors to remain invested so as to not risk missing out on the rebound in share prices, whenever that might occur.  Nevertheless, if any client feels uncomfortable as a result of recent portfolio volatility, we would urge them to contact us to discuss their individual concerns.

18th March 2020

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This post was written by The Vintage Team