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March 2020 - Market Update

| Market Commentary | By James Timpson

Fears regarding the spread and impact of COVID- 19, aka the coronavirus, dominated markets towards the end of last month, with many indices suffering their worst week since the global financial crisis in 2008. The sell-off began in earnest on 24th February, when investors reacted to the rising death toll, particularly in Italy. Then as the number of confirmed cases continued to rise worldwide, markets continued to tumble. The following chart shows the MSCI World index over the last twelve months:

Source: Bloomberg. Past performance is not a reliable indicator of future returns.

As the chart shows, last week’s rout has erased the gains made by global equity markets since last October. Stocks declined in all industries, although some sectors were more heavily affected than others. In the FTSE 100 index, which lost nearly 11% during the week, one of the worst performing sectors was Consumer Discretionary. Many of the companies in this sector would struggle if the outbreak were to spread considerably, as fewer people would be going out to restaurants, cinemas and gyms etc. The VIX index, which measures implied volatility within the US equity market, reached its highest level since 2008.

A full round-up of February market performance

In the UK, the FTSE 100 index fell -8.99%, while medium and smaller companies, measured by the FTSE 250 ex IT index and the FTSE Small Cap ex IT index, declined -8.87% and -9.06% respectively. In the US, the S&P 500 index dropped -8.23%, while in Europe the Eurostoxx 50 index lost -8.43%. Japanese stocks measured by the Topix index sank -10.27%.

Emerging market returns were also negative, with the MSCI Emerging Markets index falling -3.83%. Latin American equities, measured by the MSCI Latin America index, fell -7.77% and Indian stocks measured by the IISL Nifty 50 PR index decreased -6.36%. However, despite being hit by the sell-off along with the other markets last week, Chinese equities measured by the MSCI China index ended the month up +1.17% with the help of a significant rally at the start of the month.

In the fixed income market, UK government bonds, measured by the FTSE Gilts All Stocks index, gained +1.25% and long dated (over 15 years to maturity) gilts rose +2.06%. European corporate bonds, measured by the Markit iBoxx Euro Corporates index, lost -0.38% while sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, slipped -0.76%. In the high yield market, the Bank of America Merrill Lynch Euro High Yield index and the Bank of America Merrill Lynch Sterling High Yield index shed -1.87% and -1.16% respectively.

Commodities had a poor month. The S&P GSCI index, which consists of a basket of commodities including oil, metals and agricultural items, relinquished -8.39%. Oil in particular was badly hit, with the price of a Brent crude oil futures contract declining -13.14%. In the agricultural markets corn fell -4.72% and wheat lost -4.98%. The precious metals were also negative as the S&P GSCI Gold and Silver indices conceded -1.22% and -8.94% respectively.

In the currency markets, it was a difficult month for the pound as it depreciated -2.90% against the US dollar and -2.33% versus the euro.

James Timpson CFA, BSc (Hons), IMC
Analyst


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