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Market Outlook 28-04-20

Where Are We Now?

Equity markets have responded positively to the high probability that the worst case health, economic and financial outcomes will not be realised. The US market bottomed on the 23rd-24th March and since then shares are up over 40% from the intra-day low of 2000 and 30% from the closing low of 2200.

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Pandemics and Interest Rates – What Next? –April 2020

Governments have initially responded to the Coronavirus pandemic by slashing interest rates and increasing fiscal support. While it is easy to think increased levels of fiscal spending could increase inflationary pressures, and therefore interest rates going forward, looking at the history of pandemics and interest rates suggests otherwise.

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Market Update

It is now clear that the world economy is experiencing a sudden stop without precedent in peace time. In fact, during wars economies generally operate at a flat out pace, and in the UK the WWII induced return to full employment post the 1930s Depression necessitated higher taxes, not only to fund the government deficit, but also to prevent inflationary pressures in an economy where disposable income was growing but there were few goods available to purchase.

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Market Update Expanded

What should investors do is on the lips of every market participant/advisor. An extremely hard question to answer with certainty but the following thoughts may help to provide some clarity on an obviously fluid and fast moving situation: When will investors believe the measures taken will control the crisis on a number of fronts: medically, economically, and in a financial sense? When this occurs investors will be able to look across the valley or abyss and absorb bad news which is yet to come, whether in terms of the spread of the disease, the huge hit to economic activity, or corporate solvency pressures. Three key points investors are looking for are:

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Market Update

What should investors do is on the lips of every market participant/advisor. An extremely hard question to answer with certainty but the following thoughts may help to provide some clarity on an obviously fluid and fast moving situation:

When will investors believe the measures taken will control the crisis on a number of fronts: medically, economically, and in a financial sense? When this occurs investors will be able to look across the valley or abyss and absorb bad news which is yet to come.

A clear concern is voiced for the longer-term in the Ferguson report from Imperial College London which argues suppression measures can control the virus in the short-term, but if relaxed will result in a second wave. This if it occurred would leave economies in a depressed situation and markets would have another leg down, even from levels of up to 35% below peaks. This would be a global depression scenario.

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Market Comments

There continues to be a huge commentary understandably on the effects of the Coronavirus. Within most of this there is little new. Some key points to watch are:

Liquidity issues for corporate and individuals both in terms of forced selling in markets to meet margin calls/risk controls or paying wages/bills/financial obligations. Tensions in a number of asset classes (government bonds, corporate credit, currencies and equities all saw hugely higher dealing spreads) surfaced this week partly resulting from a scramble to buy offshore US$ presumably to meet obligations which resulted in a rush to sell anything that could be sold for short periods.

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Sydney Travel Blog – Part Two Sustainability Investing

After spending New Year in Tasmania I returned to Sydney and met up with the Stewart Investor Sustainability team who have relocated from the Commonwealth Bank building at Darling Harbour to the Rocks area of Sydney (see picture). This historic part of Sydney became established shortly after the colony’s formation in 1788, but was not glamorous as it was on the arriving convict side of town, often frequented by visiting sailors and prostitutes and gained a reputation as a slum area. Debate ranged for many years about the merits of re-developing the area with control given to the Sydney Cove Redevelopment Authority in 1968. Today renovations have transformed the area into a commercial and tourist precinct with many of the old historic buildings preserved. The Stewart Investors office is located in Hickson Road, home to the ASN Warehouse. This building was originally the Australasian Steam Navigation company and was constructed 1884–1885 and included living quarters at the upper levels. This is the building in the centre with the turret. The Metcalfe Bond Stores (to the right in the picture) are the original warehouse buildings constructed in 1912-1916 and were the place where imported goods remained in storage until a customs duty was paid on them, a situation which may become more common today in the United States if Trump enacts protectionist trade policies. Michael Metcalfe was one of the original founders of the ASN Company. Today the Rocks area and surrounding wharfs are being revitalised and the Stewart Investor team share a building with a variety of businesses including some other boutique asset managers.

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Sydney Travel Blog Part One

After the clear skies in Hong Kong it was good to arrive in Sydney when three days of rain were clearing. Sydney in December allows travellers from the Northern Hemisphere to become reacquainted with summer, with humidity levels at this time of year still relatively low. Much of Australia has suffered a cool, wet spring but summer has now kicked in with temperatures ranging from the mid 20s to low 30s. Whilst States such as Queensland and WA have suffered from the slowdown in the resources sector, Sydney remains buoyant, although there are now some signs that its rampant property market is coming off the highest levels. Sydney property has attracted a large number of Chinese buyers, both attracted by the quality of life available in a bolthole location, and also perhaps a protection against fears of controls on the movement of capital in China and further RMB depreciation. The Australian exchange rate is no longer as strong as it was, although unsurprisingly in Sterling terms prices are higher than 12 months ago when Brexit was not regarded as a likely outcome of the EU Referendum. The impact of the fall in Sterling is noticeable as there appear to be less UK tourists around, but this is being made up, not only by Chinese visitors, but also a lot more visitors from the States who are enjoying the spending power of the resurgent US currency.

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Protecting Yourself and Your Family – All about Insurance

Individual protection needs vary from person to person. Personal circumstances will determine an individual’s need for a type of insurance and the level of cover they require. In the current market place, there are many difference types of insurance policies with many people asking themselves which cover will I need if I get sick or which cover will I need for my family if I die? The main focus of this article is to provide a breakdown of the main types of protection policies to assist clients in deciding which cover may be suitable for them. Read more...

Hong Kong Travel Blog – Dec 2016 Part 2

I took the opportunity to meet up with the highly regarded China team at First State Stewart Asia, who are now a separate unit to Stewart Investors. Their China specialist QQ is a Chinese national with excellent on-the-ground contacts in mainland China. QQ visits China frequently and stated at company meetings it was apparent that things have stabilised on the ground. Chinese company management are now more positive and the wider population has regained the confidence to spend. QQ believes the leadership in China have recognised the role of the market and will intervene less and work more as a referee and policeman. Although it will be a long-term project, the government has closed some inefficient and polluting heavy industry, such as coal mines and steel producers. Favoured industries in China include technology, services and some microbusinesses which have received tax benefits. The authorities in China will continue to tackle environmental issues in the northeast of the country by closing down heavily polluting industries. Read more...