Newton IM (BNY Mellon): Commentary by Paul Markham

March 16, 2020

Paul Markham, global equities portfolio manager at Newton Investment Management comments on financial markets this morning:

“More wild gyrations have tested the nerves of investors as markets try to get to grips with the impact of Coronavirus, promises of fiscal loosening by governments and the pre-existing backdrop of structurally low economic growth in the wake of the 2008-9 financial crisis. Following attempts by various central banks to assuage both economic and market uncertainty over the last several days, a group of them led by the Federal Reserve announced aggressive and concerted action on Sunday, including a US interest rate cut of a full 1%. This takes rates back to levels last witnessed in 2009 and is accompanied by injections of liquidity designed to ease distressed credit markets. At the time of writing, investors did not seem impressed, with sharp falls registered across Asian and European equity exchanges in the wake of the announcement.

On market volatility, he added: “It was widely believed that the early phases of this market volatility were a ‘healthy correction’, as investors marked equities lower after a period in which they had got ahead of themselves. However, as the last few weeks have unfolded there has been a growing fear that the world faces a perfect storm. The Saudi/Russian oil-price war which played a major part in catalysing market turmoil does not even, for now, seem to bring the silver lining which comes to economies in these situations in the form of cheaper energy, as increasing numbers of consumers are falling ill, working from home or self-isolating in an effort to avoid Covid-19. The ban on travel between the US and Europe, and severe nationwide lockdowns have added to the sense of crisis. The economic impacts are likely to be significant; and any bounce-back as the year wears on may not bring bourses back to immediately preceding levels. Interest-rate cuts such as those mentioned above, essential as they are in attempting to steady shaky credit markets reeling from the significant impact on the energy industry, cannot deal effectively with the supply-side shock originating from supply-chain disruption in China.

On global equities, he said: “Movements in both directions are likely to be extreme for now and equities in particular will remain volatile. Opportunities are already presenting themselves, however, in financially strong companies with multi-year growth and differentiated business models. Many of these are currently available at materially lower prices than they were a month ago. A strong nerve will be required and it may well get darker before we see the light; but, for those taking a long-term view, attractive entry points are beginning to emerge.”