Covid-19 Investment Update

At the time of writing, on Tuesday 12th May 2020, just less than 24 hours has passed since Boris Johnson unveiled the outline of the plan to lift lockdown in the UK. UK equity markets have responded well to the speech, as it has provided some guidance to easing lockdown measures as well as the all-important light at the end of the tunnel.

The VIX volatility index is often described as the “fear gauge of investment markets” as it looks to quantify the expected volatility over a 30-day rolling average. The VIX peaked on the 16th of March at a height of 82.69 points, and over recent weeks as countries have tackled the virus and progress has been made the VIX has fallen to below 30 points.

Whilst these figures may seem arbitrary, they suggest that in terms of market sentiment – investor confidence is improving.

One of the most damaging factors of this pandemic has been the subsequent Russia/Saudi Arabian Oil crisis. With demand for oil dropping significantly, but supply remaining at the same levels, the price of oil has plummeted. The knock-on effect of this caused some of the worst days in equity market history.

There are a number of large cap equities listed on the FTSE 350 that deal either directly or indirectly with crude oil and as such the capital value of these companies has been hit hard by the drop in the value of oil.

Whilst oil has not particularly rebounded, it does seem to be bottoming out. Russia and Saudi Arabia have agreed to decrease production somewhat and China are starting to get their economy up and running again which is helping increase the demand. The value of oil is likely to be a volatile market over the coming months and not one we deal in directly.

The wider message we are hearing from the UK government is the significant emphasis is being placed on COVID-19’s R rate – which indicates the rate at which the virus is spreading. Anything over 1 R is classed as an epidemic and thanks to lockdown measures, our experience in the UK is a reduction in the R rate which has now fallen below 1.

Travel stocks such as EasyJet and Royal Caribbean continue to be hit harder than most and recovery seems slow in this sector. Whilst many travel companies benefitted from the initial market bounce that we experienced in mid-March, many have subsequently fallen to a similar level since then.

Generally speaking, both investor confidence and positivity seems to be growing across global markets with the general thought that the worst may well be behind us. The FTSE 100 as a whole is up 18.84% at time of writing from the March lows. The S&P 500 in America is also up 30.29% from the same point.

Over the next few weeks and months more clarity will be given as to how we can continue to deal with the Virus and re-open the economy in a safe manner. Over the short to medium term, good health is everybody’s priority and therefore it is important that you stay safe.

We will continue to monitor and update the everchanging investment market but for now we wish you the best and hope you are all well.