The most difficult element of the UK Government’s lockdown strategy was always going to be the timing and manner of exiting lockdown. Exit too soon and risk the possibility of a second spike in infection rates and the potential for a further lockdown being implemented. Exit too late and the damage to the economy could potentially be more long-lasting and severe.
The UK Government have laid out the strategy that will apply in England and the 1st of June sees the implementation of elements of the exit process. The Scottish Government have taken a more cautious approach to easing lockdown conditions, based on the specific circumstances that apply in Scotland, with further reviews due every three weeks to assess real time circumstances. At all stages the decisions made in relation to the exit process are being informed by the lessons learned in other countries that have already started the exit process. The outcome of the different strategies will only be able to be assessed further down the line so at this point it is very much small incremental alterations as we step into the unknown. So far the evidence suggests that the increased business and social activity we have seen in China, South Korea, France and Germany has not resulted in increased COVID-19 infection rates.
What we do know, with the benefit of hindsight, is that stock market valuations have continued to recover from the low points touched in late March. The reasons for this recovery are directly attributable to the move towards a re-commencement of business activity underpinned by the massive Fiscal and Monetary stimulus implemented by Governments and Central Banks across the World. A move towards a normalisation of business activity is set to become more widespread and Policymaker support will continue to be available to help assist the transition, as can be evidenced by the extension of the Job Retention Scheme in the UK and the proposal by the European Union to set up a 750 Billion Euro fund to assist member States with the recovery from COVID-19. These supports will help to ease volatility and create the environment for a sustainable recovery to build over time.
In our last communication I commented on the progression that had been exhibited by the FTSE 100 Index which had recovered from the low point trading level of 4993.90 on the 22nd March to move forward to 5786.96 on the 20th April. As this communication is sent the FTSE 100 Index stands at 6218.79 (Source: LSE.com 29.05.2020), an increase of 24.53% over the period since the 22nd of March 2020. I make this point simply to illustrate our base advice that staying invested through market volatility has historically proven to be the best way to participate in the recovery in valuations as a part of a long-term investment strategy.
There will undoubtedly be periods of market volatility still to be faced, especially once we have better visibility of the real unemployment impact of COVID-19 when business activity becomes normalised. We will do our best to provide you with advice and support as we progress through the next stages of the economic recovery from Coronavirus. Scott and I are available to provide specific advice and guidance so please contact us if necessary and we hope you and your loved ones are safe.
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