Virus Hits Markets
The news has been full of stories about the Coronavirus and while we are not about to run out and buy toilet paper just yet, the economic impact is impossible to predict. Interest rate cuts are not going to help. If you cannot go to work or go out to buy things, we cannot see how an interest rate cut helps. That being said, there appears to be a coming together of the Central Banks and as there are no villains in this case, they should be more willing to support businesses and the economy.
We have learned not to underestimate the power of Central Banks, however if people are stuck at home and supply chains are broken, the economic impact may be severe in the short term.
A big part of the reason that markets took a sharp dive was that they were “priced for perfection”. This really means that they are going to fall when something went wrong.
We have not been buyers for some time as the value was not there. We did some selling, especially of overweight positions. For newer clients it has taken time to invest.
However, the virus is not going to go on forever and as long as the focus is on quality, this will present us with better buying opportunities and should not materially impact on the medium-term value of the portfolio.