☏ +34 93 665 85 96  |  ✑ info@spectrum-ifa.com

The recovery of stock markets cannot be ignored

By John Hayward - Topics: Inflation, investment diversification, Investment Risk, Spain, Stock Markets, wealth management
This article is published on: 15th October 2020

Apart from the uncertainty of whether or not you will still be able to use your UK bank account after 31st December 2020, there are plenty of other things going on to mess around with our lives such as Brexit, the US elections, coronavirus with its lockdown, and other global disasters. With all of these things happening, it is hardly surprising that people think that investing money in stocks and shares (equities) at a time like this is crazy.

However, we have what appears to be an illogical movement upwards in equities, especially noticeable in the USA. How can this be? They have Donald Trump! In the rest of the world, there have also been sharp upward movements since the coronavirus led crash in March 2020 (other than the UK and I will return to this later). The fact is that billions have been pumped into the global financial system to fend off another financial crisis. Some companies have fallen anyway but others have developed, or sprung up, which has led to a much prettier picture than the press would lead us, or even want us, to believe. Coronavirus and Trump seem to be the only stories pushed our way.
When there is financial stimulus, there are opportunities; not only to survive but to develop. Robert Walker of Rathbone Investment Management has this investment outlook.

“We can expect more monetary stimulus and support from central banks that have an enormous amount of unused capacity available for alleviating any renewed stress in financial conditions which is positive for equity markets. This should keep corporate borrowing costs low.

We do not believe therefore that this is a good time to reduce our long-term equity exposure, but economic and political uncertainty warrants cautious positioning and a bias towards high quality companies where we believe that earnings growth is still possible. We believe it is sensible to remain broadly invested but with a continued preference for growth and only high-quality cyclical companies that can benefit from a shift to a digital and more sustainable economy.

We believe high valuations of growth businesses are underpinned by the increasing scarcity of growth opportunities while interest rates and the returns on low risk assets are expected to stay low into the foreseeable future.”

is the economy in good shape

It is important to note Robert´s last few words regarding interest rates. They are not likely to increase in the short term, or possibly long term, if companies, at all levels, are trying to succeed to keep the economy in good shape. At the same time, inflation could increase which means any money “safely” on deposit in the bank is losing its spending power each year.

Let´s go back to my comments about the UK. Rather than me put my words to this, I will use Robert Walker´s more eloquent script.

“The difference in returns in the third quarter are stark, with US equities seeing a strong performance especially in the big technology companies while the UK’s FTSE 100 was -5% lower on a combination of Brexit and Covid-19 fears.”

“The poor performance of the UK since the referendum is well known, as is the high likelihood that leaving the EU with or without Prime Minister Boris Johnson’s deal will make the UK relatively worse off. Most independent economic researchers forecast that UK GDP, relative to current arrangements, will be between 3% and 6% worse off in seven to 10 years if the UK and EU sign a free trade agreement, the faltering prospect of which has seen the pound fall by 15-20% since 2015. As we write the likelihood of a ‘no deal’ Brexit is still too close to call.”

The knock on effect of this lack of confidence in the UK is reduced investment in that area and, therefore, from what we have seen, investing in the UK has not been top of investment managers’ agendas. My point here is that, when you look at the performance of the global economy, do not necessarily base it on the movement of the FTSE100. This could be, and ultimately has been, the undoing of many people who have been waiting for Brexit to go through before investing. Some now are even waiting for Covid-19 to go away, but I believe that they could be waiting a long time.

Here are a couple of graphs to illustrate my point. One is from 23rd June 2016, the date of the Brexit referendum, and the other is from the start of 2020. They include two of the funds that we use and compare them to the FTSE100 and an inflation index. Remember interest rates would be little more than a flat line on these charts.

equities and inflation
FTSE 100 and inflation

Being in the market before the vaccine is introduced

Timing the market (knowing exactly when to buy in and when to sell out) is nigh on impossible. Even experts do not get it right 100% of the time. However, one of the uncertain certainties is that there will be a vaccine for this coronavirus. The uncertain part is when. The important thing is that you are invested before it happens, because it is likely that financial markets will rise sharply when it is available.

stockmarkets have gone against the negative thought trend.

Of course, we know that there are other problems around the corner, as there always have been in the past. We make decisions based on our own experiences, calculating whether something is safe to do or it carries a higher risk. History has shown us on

many occasions, including through world wars, that in times of low confidence, or even panic, stockmarkets have gone against the negative thought trend.

Staying invested through the last 6 months has been really important. For those who have money in the bank, earning little or nothing, now is the time to consider making your money work for you and your family. With careful investment planning, through trusted and experienced investment managers, we can help make your future wealth more secure. We can evidence how people have “survived” this latest scary time with the opportunity to benefit in the future by the willingness to stay invested.

Invest when you have the money and disinvest when you need it
My final comment on this is actually one from another investment manager I spoke to recently. It is to do with why we have money and try to accumulate it. His extremely simple tip is to invest when you have the money and disinvest when you need it.

Contact me today to find out how I can help you make more from your money, protecting your income streams against inflation and low interest rates, or for any other financial and tax planning information, at john.hayward@spectrum-ifa.com or call or WhatsApp (+34) 618 204 731.

Article by John Hayward

John HaywardIf you are based in the Costa Blanca area you can contact John at: john.hayward@spectrum-ifa.com for more information. If you are based in another area within Europe, please complete the form below and we will put a local adviser in touch with you.

Contact John Hayward direct about: "The recovery of stock markets cannot be ignored"

    The Spectrum IFA Group is committed to building long term client relationships. This form collects your name and contact details so we can contact you about this specific enquiry. For further information, please see our Privacy Policy.
     
    If you are in the Costa Blanca area

    Click here to contact
    John Hayward
    If you are based elsewhere

    Click here to contact
    The Spectrum IFA Group