News headlines remain broadly dominated by infection and mortality rates, and the economic cost of the pandemic. The common theme across both areas is good news caveated with caution.
Pedestrian and vehicular traffic appears to be on the increase and there’s less of a locked down feeling with more apparent “over the wall” socialising as people tire of on-line interaction. However, easing of lockdown mentioned earlier this week seems to have been replaced by government reminders of the need to observe protocol and avoid a second wave of infection.
Nevertheless, business considers the return to a new normal of social distancing in the workplace, with fewer desks, one way systems and staggered A and B teams between home and office working. It certainly looks as though the return to work is immanent albeit it slow and gradual. Cautious optimism.
Financial markets have had another reasonable week despite a gloomy assessment from the Bank of England (a 14% reduction in the economy this year, bouncing back by 15% next year). Rising oil process certainly helped markets which seemed to ignore rising unemployment but opinions around the depth of the recession are clearly split.
Looking objectively, there is good reason for some optimism on the back of recent news flow. Slowing infection and early stage preparations for restriction easing are certainly positive however, some caution from a lack of understanding of the virus and both the effect and cost of lockdown should also be considered.
Financial support packages have been well received as the money tap was turned on but there are difficult and delicate decisions to be made around the turning off. It’s unclear how many furloughed workers will actually have jobs to return to, and when those who do, can. The stark reality of lockdown is that there will be winners and losers.
Previous updates have touched on this and how portfolios may be positioned for recovery when the shape and timeline is clearer. There will be risk takers hanging their investment hats on a narrow range of sectors or regions in the belief may benefit earlier or more than others. In contrast, our investment philosophy has always been, and remains, one of diversification being an important part of risk management. Subtle changes will almost certainly be appropriate while maintaining a broad investment spread.
During a conference call with our analysts yesterday we agreed the need for additional research and modelling work around a range of different recovery scenarios to better understand the possible outcomes. This is a key aspect to managing both risk and return when the recovery is underway and is an important area to explore.
In the meantime best wishes over the bank holiday weekend.
Regards
Kenny