Emergency meeting of Investment Committee, Monday, 2nd March 2020
Although markets fell 13% across the world, the graph below shows how well KMG portfolios have performed over the crisis period and demonstrates the value of diversified, globally spread investments including some significant defensive assets.
The investment committee appreciated that it is incredibly difficult to predict the outcome of the current virus and how it may affect global markets. The next meeting will be on Tuesday, 10th March, however, we will continue to monitor data day by day.
Indicators coming out of China suggest that the worst is now behind them and that China is beginning to get back to work. Indicators also suggest that by making the information so widely available to the rest of the world, it is much easier for national health authorities to take immediate action and for societies to work towards understanding the virus and living with it in various different ways – be it washing your hands, or simply not shaking hands.
All the evidence suggests that the vast majority of the population including young as well as middle-aged people will not be affected by the virus other than to have mild flu/cold-like symptoms. There may be a higher incidence of the virus amongst medical professionals who are constantly exposed to the virus and the health authorities of the world have now woken up to this important fact.
Those that will be affected by the virus are likely to be people with pre-existing conditions and the elderly and these are the people that society will need to think very carefully about how to protect them. Luckily, elderly people are not so economically active as younger people and, therefore, should have less effect upon service industry and supply chains in manufacturing etc.
Putting all of the evidence into context, it is quite likely that the whole world will be exposed to this flu-type viruses this year, next year and for the rest of our lives as we have grown used to living with other flu illnesses for many centuries. This time, unlike in 1919 or even with the SARS, Ebola, HIV and many other epidemics, we are getting much better with dealing with and working with them quickly and efficiently.
We suspect that the death rate from this virus will, in the end, be no different to the death rate from any other flu virus especially as we are now working towards vaccines and other mitigating measures which limit the spread and the evolution of the viral process.
Returning therefore to your portfolios, we are of the opinion that we wish to remain invested with you in your current chosen risk profile for the following important reasons:
- As we have stressed for all of our clients, you should have at least one year’s cash on deposit to cover short-term emergency requirements and shocks such as the Coronavirus.
- You may want to reduce your income from the portfolio for a while and live off your cash balances, if so, let the team know
- If the risk profile for you was correct last month, it will be correct for you this month and next month. Your risk profile is about your overall wealth, your need for funds in the short-, medium- and, most importantly, long-term. Your risk profile is linked to your overall wealth, the evolution of human behaviour, political activity and general economic evolution.
Remember that there will be many winners from this virus as we change the way in which we live our lives, be it in our diet, in remote working, in technology, and it will be up to KMG to make sure that we capture as many of those upsides while limiting the effect of downsides.
We do think that the demographic arguments that we have been putting forward will come to the fore, especially in Europe which is now seeing a shrinking working population and will start to see a shrinking overall population next year.
We will see an acceleration in infrastructure spending, especially around climate change and public transport as well as major projects to keep people employed and for money to remain in purposeful circulation.
We expect to see a significant stimulus to the UK economy from the upcoming Budget on 11th March.
We do not think that the Trump presidential election is likely to be blown off course, nor do we see that the Chinese political system will be unhinged by the current traumas in the global markets. However, there will be many aftershocks from the virus, and we must expect, therefore, a continued and extremely volatile global market as we move through this year.
A further update will be published next week unless we have an event that makes us meet again during the course of the next seven days.
The KMG Team