Global Market Overview

After initially shrugging off concerns about the coronavirus (COVID-19), investors started to respond negatively to news that the outbreak was spreading beyond China. Sharp falls in the last week of February resulted in a negative month across global equity indices. A stronger yen and dollar, both traditionally viewed as safe haven currencies, pared back losses for sterling-based investors with the results that the MSCI World index only fell 2.24% in sterling terms. Interestingly, Asia ex Japan and Emerging Markets which had borne the brunt of investor nervousness in January, fared relatively well with the former generating a positive return in sterling (+0.24%). This is consistent with reports of falling numbers of new cases in China and significant increases elsewhere, notably Italy and Iran. The UK market suffered from its exposure to energy and materials companies, with the FTSE 100 declining almost 9% in February on the back of an oil price which has fallen almost 30% year to date.

Fears about the impact of the coronavirus on the global economy and the expectation that governments will provide further monetary support (indeed the US Federal Reserve lowered the federal funds rate by 0.5% on 3rd March) meant that investors flocked to government bonds. By the end of the month the US 10-year Treasury yield stood at a new all-time low of 1.1% translating into a return of 2.73% in dollar terms. UK gilts returned 1.25% to investors.

Economic Data

*In the Euro Area, the main refinancing rate is 0 and the deposit rate is -0.5 percent

Source: 5th March 2020

Key Highlights

• The latest (pre-coronavirus) US economic and employment data was strong with non-farm payroll data showing that 225k jobs were created in January and wages edged up 0.1% year on year. However, February’s flash composite PMI fell below 50 and the US Federal Reserve cut interest rates by 0.5% on 3rd March in response to the growing crisis.
• The Eurozone economy grew by just 0.1% in Q4 2019 whilst the German economy experienced no growth over the same period. In early March the Italian government announced a €3.6 billion stimulus package.
• In the UK, Indicators of both consumer and business sentiment were showing signs of improvement and job growth was strong in Q4 2019 pointing to an ongoing recovery following the General Election.
• In China, the loan prime rate has been cut by 10 basis points, and provincial governments have waived VAT, social contributions and rent to ease the financial pain, particularly for smaller businesses.

Performance of RPW Models over one month to 29th February 2020

All models posted negative returns for the month of February. Unsurprisingly the strongest performance came from the RPW Cautious model which fell by 1.08%. The RPW Moderately Cautious model declined by 2.10%. This was followed by the RPW Balanced model which lost 3.94%. The RPW Moderately Adventurous model dropped by 5.36% and the RPW Adventurous model by 7.47%.

Performance of RPW Models over three months to 29th February 2020

Over the past three months, all models have declined in value. The RPW Cautious model fell by 0.06%. This was followed closely by the RPW Moderately Cautious model which declined by 0.76%. The RPW Balanced model fell by 2.66%, the RPW Moderately Adventurous model by 4.12% and the RPW Adventurous model by 6.11%.

Performance of RPW Models over one year to 29th February 2020

Over one year, all models have generated a positive return. The best performer was the RPW Adventurous model which rose 6.32%. The RPW Moderately Cautious model generated a return of 5.61%, the RPW Moderately Adventurous model rose 5.53%, the RPW Balanced model was up 5.10% and the RPW Cautious model rose 4.63%.

(Source: Financial Express Analytics, Total return, gross of fees, as at 29th February 2020).

Please note that these figures are unaudited and indicative. The performance of actual client portfolios may be different. The effect of fees will reduce the returns achieved.

Funds Update

As in January, the best performing fund was Allianz Gilt Yield, which rose 1.82% as risk averse investors moved out of equities and into bonds. The corporate bonds funds did not rise as much given their exposure to the creditworthiness of companies but overall held up well. The more defensively positioned L&G Sterling Corporate Bond fund rose 0.07% whilst iShares Corporate Bond Index declined by 0.17%. Axa Sterling Credit Short Duration bond fund was flat over the month, with its lack of duration (sensitivity to inflation and interest rate expectations) proving a detractor when compared to government bonds. L&G Property held firm with a 0.18% rise.

The best performing equity fund was Baillie Gifford Pacific which declined by 1.59%. As a more aggressively positioned fund with exposure to the likes of Vietnam this placed it in the second quartile within its sector. Blackrock European Dynamic fell by 5.07% but retained its top quartile ranking.

Funds which ended the month with a first quartile ranking included Blackrock European Dynamic (-5.07%), and Liontrust Special Situations (-7.98%). Man GLG Undervalued Assets (-9.73%) finished up in the third quartile, with its exposure to more economically sensitive companies proving detrimental.


We have been used to rising markets and low volatility for so long that it can be a shock when equity indices take a nose-dive. After several weeks of apparent complacency, when markets continued to rise, some investors have, understandably, started to express their concerns about the spread of COVID-19 and its impact on the global economy.

China is a much more significant player in the global economy than when the SARS outbreak occurred almost twenty years ago, and with significant parts of it in shutdown as the authorities attempted to contain the infection, there was clearly going to be a knock-on effect to global manufacturing and trade. Moreover, as the virus spreads, there is risk to the whole of the world economy not just areas exposed to China. However, with the lag in reporting of data there has been little concrete evidence of an economic slowdown as yet, although, companies such as Apple have warned that their next quarter’s trading periods will be impacted because of broken supply chains and closed factories.

Market sentiment is being driven by reports of new outbreaks with Italy and Iran being the first two countries outside Asia to experience significant numbers of those testing positive. Interestingly with the number of new cases now growing faster outside China than within it, the Chinese stock market has performed better than both the US and the rest of the world year to date.

With so much uncertainty as to the nature of the disease itself and the extent of the damage to the global economy it is almost a given that markets will remain very jittery and further significant falls in market values are highly likely. Whilst this can be very uncomfortable for our clients it is important not to panic. If you feel that your risk appetite and ability to withstand a market correction has changed then please do consider moving into a lower risk portfolio, accepting the prospect of lower, long-term returns for a smoother ride. Otherwise, it has been proven time and time again how difficult it is to time the exit and, crucially, then re-enter into equity markets.

The market volatility has thus far been driven not by fears of slowing consumer demand as in previous downturns but because of disruption in the supply chain. This has the potential to reverse quite quickly if the outbreak is contained or a vaccine is discovered. Furthermore, if Central Banks are forced to intervene by cutting interest rates to support their economies then the demand for equities is likely to resume as the yields on cash and bonds fall further.

No-one knows when markets will stabilise but our recommendation is to focus on your strategic long-term asset allocation, to ensure that this is consistent with your tolerance to risk and capacity for loss, and that your portfolios are well diversified. We undertake this very exercise at least annually with all of our clients to ensure that market events, such as this, whilst worrying, are not a surprise.


Investors should try not to panic but instead focus on ensuring that they have an appropriate asset allocation for the level of risk with which they feel comfortable. A disciplined approach to asset allocation and identifying good active managers who can navigate these conditions successfully remains of the utmost importance.

9th March 2020

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