The pandemic is spreading rapidly in the US, which is now following the rest of the West into self-isolation. Beware of leverage and expect dividend cuts, warns our chief investment officer Julian Chillingworth.
Index
1 week
3 months
6 months
1 year
FTSE All-Share
6.6%
-28.1%
-24.3%
-19.7%
FTSE 100
6.3%
-27.0%
-24.2%
-19.7%
FTSE 250
8.7%
-32.7%
-25.3%
-19.4%
FTSE SmallCap
5.4%
-30.2%
-23.6%
-21.3%
S&P 500
4.8%
-16.6%
-13.9%
-1.9%
Euro Stoxx
4.8%
-23.3%
-21.4%
-11.7%
Topix
9.2%
-9.6%
-9.2%
0.0%
Shanghai SE
-4.4%
-3.5%
-5.4%
-7.2%
FTSE Emerging
-1.2%
-20.6%
-16.4%
-11.2%
Source: FE Analytics, data sterling total return to 27 March
Battening down the hatches Over the next few weeks, we believe there will be a raft of dividend cuts, profit-warnings, emergency capital-raisings and credit downgrades. Combined with truly terrible economic numbers that will flow from a complete shutdown of nations, which we warned about last week , we believe this wave of bad news will lead a few more investors to panic. Not that we feel there is anything to panic about, mind. This is a tough time, sure, but we will get through it. But we feel you really need to be focusing on the solvency of your investments and bracing yourself for a drastic reduction in dividends . Many companies are going to be going months with little to no sales to speak of. They will be in survival mode. Any stocks with lots of debt are going to find life tough and those dependent on the consumer will be under pressure, so retail, leisure, industrials and mining and oil. Healthcare, consumer staples and utilities should all weather the storm better. Meanwhile, erratic moves in markets are likely to continue. Much of the selling has been aggravated by margin calls on over-indebted investors. Margin calls are when a lender demands more collateral (cash or assets) to protect their loan to someone who has borrowed to invest (‘levering’ their investment). This happens when the value of the collateral drops because of market falls. When this happens systemically, it tends to lead to greater sales to fund these obligations and therefore yet more margin calls. Some banks have stopped requiring margin calls – especially in securities backed by commercial property – to try to prevent this spiral from spreading. On Friday, the strong rally propelled by fiscal and monetary stimulus ran into the ground as investors took profits and turned their attention to the virus itself. We believe any sustained recovery in markets requires the number of cases globally to begin to peak. That would give people more confidence in mapping the length and depth of the economic slowdown. The rising number of cases across Europe and the US over the weekend will probably unsettle markets this week. Globally, COVID-19 cases have broken 700,000 and in the US the number of infections continues to increase rapidly. Various statistical models closely followed by the UK government suggest that, as testing increases in the UK, the number of cases will peak at 65,000. As of Sunday, there were 19,000 confirmed cases here. Hopefully, if we all stay smart and keep our distance from each other, we can get through this quickly and get back up and running. Bonds UK 10-Year yield @ 0.35% US 10-Year yield @ 0.68% Germany 10-Year yield @ -0.51% Italy 10-Year yield @ 1.34% Spain 10-Year yield @ 0.52% Economic data and companies reporting for week commencing 30 March Monday 30 March UK: Nationwide House Prices Full-year results: Ades International Holding, Belvoir, Globaltrans, Instem Interim results: Quadrise Fuels Tuesday 31 March US: Consumer Confidence (March) Full-year results: Chesnara, Dp Poland, Michelmersh Brick Holdings, One Media, Propty Franchis, Proteome, Surgical Innovations, Tp Group, Tremor International Interim results: Diageo, Gfinity, James Halstead, Smiths Group Wednesday 1 April US: ISM Manufacturing and employment Full-year results: Brave Bison, Cathay International, Future Medical, RHI Magnesita, The Mission Group Thursday 2 April Full-year results: Hunters Property, Saga Interim results: Tracsis Friday 3 April US: Non-farm payrolls and unemployment, ISM Non-manufacturing services