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Financial Markets and Investors Have Been Left Bruised and Battered

Published 31/03/2020, 10:10
Updated 25/12/2023, 10:05

Financial markets and investors have been left bruised and battered by one of the most brutal quarters on record for equities, but the last few sessions have indicated some tentative green shoots. 

Italy is finally seeing progress in its fight against the coronavirus. Stefano Patuanelli, a member of the Italian senate, says people should prepare for the end of lockdown. Getting back to normal could be as hard as isolating in the first place, but recovery is not far off.  There is light at the end of the tunnel you feel.

Asian shares were broadly higher as Chinese factory data improved as investors were encouraged by green shoots. The official manufacturing PMI rose to 52, ahead of the 45 forecast and well up from the coronavirus-impacted 35.7 in February, which was a record low. Two things about this number – it shows a bounce, which is encouraging, but it doesn’t show a massive bounce into the 60s, and can we really trust the number? Economic recovery will be uneven, and stock markets are unlikely to bounce back to where they were, yet the panic seems to be over. Japan’s retail sales bounce seems to be down to a spot of panic buying – something we could see in the next UK retail sales print.

Australia was weaker, with a late fall sending the ASX 200 down 2% on the day to cap its worst quarter since 1987. 

European markets are broadly higher again but are still heading for the worst quarter since 1987. Despite the FTSE rising 2% today and having put on 700-odd points from the lows, the blue chips are still set to finish the quarter down by a quarter. Similarly, the YTD performance of all the major European indices looks around –25%, give or take. 

The US is doing a bit better. The Dow finished yesterday up 3% for its fourth green day in five. It’s down 12.2% for March its worst monthly performance since Oct 2008, when it declined by 14%. For the quarter it’s 21.76% lower, only beaten by the 25% decline registered in the final quarter of 1987. 

The S&P 500 was up 3.5% yesterday and down 11% for the month. This would also be its worst since Oct 2008, when it fell almost 17%. Quarterly the broad market is holding up better others – the S&P 500 is down 18.7%, again its worst since 2008. Tech is faring even better – investors are finding safety in quality names and in about the only area of growth except for grocery. The Nasdaq is only down 13% this quarter. 

Quarter- end rebalancing could be a big factor in the bounce we have seen and it could get tougher again in April but the low is in for now. We could be in for a website-shaped recovery: WWW.

Equities 

UK banks are preparing to be told that they cannot pay any dividends. The Prudential (LON:PRU) Regulation Authority looks set to follow the ECB in demanding banks hold off on any shareholder returns for the time being in order to boost capital levels. These are unprecedented times, they’ll come for the bonuses next. But there is an important point here – shareholders are now at the back of the queue. Short-term I don’t particularly think dividends are going to be a major factor in trading action - investors will not be quibbling over whether they get a 2% or a 6% dividend yield on stocks, they should be looking at whether these companies are going to be in a decent shape after the fallout. Capital discipline will be welcomed, whether it’s enforced or not. Barclays (LON:BARC), Lloyds (LON:LLOY) and RBS (LON:RBS) all rose in early trade. 

Shell (LON:RDSa) forecasts post-tax impairment charges in the range of $400-800 million for the first quarter. In an update today the company says margins are down and the impact of the coronavirus and OPEC price war was primarily felt in March with little effect on Jan-Feb. Management reiterated that for every $10 move in the price of a barrel of oil it’s worth $6bn in free cash flow. However, this sensitivity is not as pronounced in when we see prices move as aggressively as they have – you can cut operating and capital expenditure accordingly. Shares rose 5% in early trading in London. 

 WPP (LON:WPP) and AA have joined the long list of companies suspending their dividends. Imperial Brands (LON:IMB) has seen no material impact on performance to date and current trading remains in-line with expectations. 

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