Investment Update – 9 March 2020

Investment Notes

Stock markets have declined again, as Italy quarantined a quarter of its population to address its worsening coronavirus outbreak, and Saudi Arabia started a price war in the oil market; the Brent crude price has fallen from $65 per barrel at the start of 2020 to $35 at the time of writing.  While cheaper energy should provide a boost for the world economy in due course, in the short term the sharp decrease in the oil price has destabilised markets; by noon on Monday 9 March, the share price of BP had fallen by 20% and that of Royal Dutch Shell by 14%.  We regularly highlight the negligible allocation to oil stocks in our model funds, especially when discussing climate change matters; our managers focus on high-quality, resilient businesses and the variable returns from the oil industry tend to exclude them from consideration for our recommended funds.  The combination of the news on the coronavirus outbreak and oil price decline means that the FTSE All-World index has now retraced the gains made since March 2019, as shown in the chart below.

FTSE All-World Index since 2019

While the news on the virus outbreak seems to be worsening in Europe and the US, recent announcements in China and South Korea are more encouraging, with the number of new cases declining in both of these countries.  Should this improvement continue, stock markets could eventually react in a manner which recognises the impact of the virus outbreak is transitory.  However, long-term investors may have to tolerate heightened volatility, as short-term traders will surely continue seeking to profit from adverse developments.  For instance, we are mindful that while the UK has universal healthcare and the British Government has adjusted sick pay rules to encourage self-isolation if necessary, the situation in the USA is materially different; this could present extra challenges in confronting the outbreak and the world media and financial markets are likely to react with extra vigour to bad news on the epidemic, should it arise in America. 

We continue to advocate a patient approach, in the belief that the strong businesses held in the funds we recommend should endure and thrive.  Three of our model funds calculate the longevity of the businesses held in their portfolios, with an average life of 123, 95 and 77 years respectively.  Such companies have survived and prospered despite the numerous challenges they have endured over the years, and we expect them to continue to do so in the future.
 
 
 
The information, data, analyses, and opinions contained herein are provided solely for informational purposes and may not be copied or redistributed; neither do they constitute investment advice offered by London Wall Partners and therefore are not an offer to buy or sell any security.  London Wall Partners expressly disclaims any responsibility for trading decisions, damages or other losses resulting from any use of the information herein.  Investments fluctuate in value and may fall as well as rise and investors may not get back the value of their original investment.  Past performance of financial markets should not be used as a guide to future performance.
 
Ref.: 200017