In February, Sajid Javid made headlines in the UK when he resigned as Chancellor of the Exchequer. He was swiftly replaced by Mr Rishi Sunak, who will now deliver the Spring Budget only weeks into his new role, on Wednesday 11th March.
Turning our attention to the United States, with a presidential year underway, it would seem that the economy is far from showing signs of slowing down. Data from February suggests that new homes sales hit their quickest pace since 2007, and personal income rose to its highest level in the past year.
In the Eurozone, after months of disappointing economic results from Germany, we could be starting to see some green shoots of recovery. The number of people out of work in February decreased and in fact, the whole economy seemed stronger than expected, with business sentiment also improving slightly.
However, looking ahead, we expect to see worldwide changes to economic performance as the effect of the coronavirus on global trade plays out.
In early February, it seemed as though global financial markets had shrugged off the effect of the coronavirus, treating it more like a common cold than a global pandemic. However, as the outbreak spread outside of Asia, investors started to reassess their earnings outlook, leading to a global sell-off in shares. Our Head of Investment Strategy, David Semmens, answers four common questions about the coronavirus here.
The FTSE 100, which represents the UK’s largest public companies, retracted by -8.97% in February. We saw a further decline in oil prices, which caused BP and Royal Dutch Shell to lead the UK stock market lower. However, this time the decline carried across all sectors, as concerns around global trade filtered through to stock market performance.
US shares, as measured by the S&P 500 stock market, declined by -8.23%. Along with the energy companies, the sector that was hit the hardest was travel and leisure. Royal Caribbean Cruises was one of the worst casualties, with its share price decreasing by -31.32%. Interestingly, as mentioned in prior updates, it is the technology sector that tends to be the predominant driver of US stock market performance. The biggest contributors to the decline in February from this sector were Apple (-11.47%), Microsoft (-4.57%), and Amazon (-6.22%) owing to concerns over a slowdown in manufacturing due to coronavirus.
Europe (-7.83%) and Japan (-8.82%) also suffered notable losses in February. Asia ex Japan, and Emerging Markets, delivered relatively better returns of -2.86% and -5.26% respectively.
In February, the Pound declined against all major currencies. The most probable reason for the decline against the Euro is based on sentiment towards the outcome of Brexit. However, the decline against the Japanese Yen and US Dollar are more likely due to investors flocking to those currencies, both of which are commonly known in the industry as safe havens when stock markets are going down.
• Euro -2.36%
• Japanese Yen -3.43%
• US Dollar -2.99%
Investment Type Performance Breakdown
Performance among the investment types in your Plan this month was predictable given the current concerns driven by Coronavirus affecting the global financial markets. Shares were down -6.75% and global property was also down -7.44%. However, bonds typically perform better when stock markets are down, and these ended up at +0.96%.
The performance for our Plans this month was mixed. Plans with more bonds delivered marginal negative returns, whilst Plans with more shares saw greater negative returns, reflecting global stock markets.
Many of our newer customers may not have seen a decline in their Plan value since investing with us until now and could therefore – understandably – be concerned about current performance. Situations like this can test the most seasoned investor, but investing is a long-term commitment and market dips, like we are experiencing at the moment, are to be expected.
If you look at the UK FTSE 100 over the past 30+ years, whilst there have been some significant dips along the way (such as the 2008 Financial Crisis), you will see that overall it has continued to grow. Markets recovered each time and those who held their nerve would have seen the benefits of long-term investing, as these temporary dips can offer opportunities for savvy investors.
Trying to ignore the noise can be difficult, and it is only by withdrawing from your Plan when markets drop, that you make any losses real.
Our Investment Team are currently working on rebalancing Plans, and we will be in touch with the details of those changes within the coming days.
In the meantime, should you need any reassurance, please get in touch on 0800 802 1800, by Live Chat, or send us a secure message. We’re here weekdays from 8am until 6.30pm and Saturdays from 9am until 12.30pm, and we’ll be happy to help.
The figures shown are based on a medium-risk (Confident) investment Plan.
Please remember the value of your investments can go down as well as up, and you could get back less than invested. Past performance is not a reliable indicator of future returns.