In his first national address since recovering from COVID-19, Boris Johnson announced that the UK has passed the peak of infections but he will not risk lifting restrictions too soon. The Prime Minister pledged to reveal a “road map” next week on how the country will leave the Coronavirus lockdown and get back to work. He promised a cautious approach to lifting the lockdown in order to avoid a second spike in infections.
Data released on Wednesday showed that US GDP shrank 4.8% in the first quarter of 2020, representing the largest contraction since the 2008 financial crisis. However, markets were up over the week, showing that investors had already looked through the decline in economic activity well in advance of the release of the official figures.
As company reporting picks up, it becomes increasingly apparent that many are planning ahead for the imminent easing of lockdown measures across the globe. The phased reopening of economies will kick-start these businesses as we are gradually starting to see the road ahead a little more clearly.
Corporate news flow has ramped up this week as firms have begun to update markets on how exactly the Coronavirus pandemic has affected them. Many of our portfolio businesses shared encouraging news, demonstrating that a slow return to business as usual is ensuing. For example, InterContinental Hotels Group announced on Monday that 97% of its 470 hotels in China have reopened since the country began to ease lockdown restrictions. It’s encouraging to see those economies which are further along the curve starting to come alive again and the positive effects on businesses in these regions.
Markets have behaved bullishly in the last few weeks with many stocks running hard. Defensive stocks in particular have seen significant price rerating as investors crowd into safer assets. If markets are to continue to progress upwards from here, cyclical companies need to move higher, which will require some restarting of the global economy. Businesses that are suffering greater hardship from the lockdowns will only fully recover when people start going back to work, and shops, restaurants and offices are allowed to reopen.
Investors seem keen to hide in defensive companies, evidenced by stretched valuations in these safer assets. We are carefully monitoring our investments, analysing each company’s prospects and value. We have taken some steps to sell down those which have become too expensive but we caution that despite some slightly rich valuations, these businesses are still set to deliver longer term returns and cope with inflation. Despite the potential for a short term pause in performance, they continue to earn their way into the portfolio.
Sanlam Virtual Event Programme
Earlier in April, we organised a series of events designed to offer some respite from the lockdown measures. Whilst we remain diligently focused on protecting client wealth amidst the extraordinary market backdrop, we also wish to do everything we can to help clients & contacts through this period. In light of the extended lockdown and the extremely positive feedback we received on the first round, we have extended this virtual event series, continuing some of the previous events and offering a few new ones.