March 16, 2020

BY Milltrust International Group

In Asia, we have been living with this for 3 months now and here in Singapore, the measures taken by the government appear to have prevented a mass outbreak. Life goes on with all the customary temperature checks and sanitary precautions. Football training is happening, schools are open and yoga classes and gyms remain fully functional. Once passed the initial panic stages (supermarket mayhem), life starts to get back into its stride, and this will be the pattern in other parts of the world too.

Efforts to slow down the inevitable spread of what will be for most people a mild cold, are largely to take the pressure of the health systems so they can cope with emergency cases. Widespread testing will reveal far wider contamination that is currently evidenced by the statistics. Health officials are predicting that 70 percent of the community could contract the virus. It is anticipated that our bodies will develop immunity and that vaccines and antiretrovirals will be developed in due course.

In the US and much of Europe, we are in the panic phase. However, one needs to remember that this is a virulent form of influenza, but it is unlikely to have any lasting health impact on healthy individuals.

The impact of markets reflects a number of factors:

  • The inevitable impact on global growth and the slow-down of the world engine for growth – China,
  • The unprecedented impact on certain aspect of the economy such as leisure, insurance, travel, hospitality,
  • The wider impact on companies that have been servicing high levels of debt with an insufficient margin of free cash,
  • The deflationary impact of lower oil prices,
  • The margin pressures on financial institutions of negative interest rates,
  • The impact on stock markets of the private banking industry that accounts for an immense amount of private leverage which is now suffering margin calls, and in many cases wiping out equity. This is a short-term phenomenon, but it could be some time before this capital source is reconstituted and makes for some extraordinary stock price movements. (Some companies like NMC and Finablr have simply gone bust overnight).

This crash, part of a pattern that seems to manifest itself every decade, will provide a historic buying opportunity for the markets we follow. If recent history is anything to go by, it will provide a significant opportunity across all global equity markets to invest.

The inevitability is however that most pension funds and passive investors will not invest and in the same way these markets gapped down at the hands of the market makers, they will gap up again very quickly. Only the brave will make any money out of this crisis and most will lose out. My strong conviction is that this is a time for prudently increasing one’s exposure to those companies that we and our advisors have identified as excellent businesses, capable of withstanding a period of financial turmoil, and operating in the industries that will not be permanently damaged by this experience.

Simon Hopkins

Categories: News