News Flash | 3rd March 2020

Following our news FLASH published last Friday, the rebound of equity markets has been most welcome.

Equities got off to a strong start this week, with a 5% gain for US equities on Monday as well as an initially positive reaction to the Federal Reserve’s announcement to cut rates by 0.5% today; while anticipated by the markets, the FED’s decision has been taken exceptionally before the planned 18th March meeting and reflects the high level of concern of the US central bank in view of the spreading of the Covid-19 virus.

This equity bounce has provided us with a window of opportunity to strengthen portfolios and we have bought some protection at a cheaper cost than during last week’s sell-off. This tactical decision allows us to maintain our equity allocation. It also contributes to mitigate portfolio losses were the ultimate impact of the virus outbreak prove to be much more damaging to the economy and to financial markets. If markets were to prove resilient to the ongoing crisis and be little affected, the purchase of this protection will represent an opportunity cost for the portfolios, a limited price to pay in view of the potential drawdown of equity markets in a worst-case scenario.

The spreading of the virus will continue to trigger decisions by governments and corporations that will further hurt economic growth and raise the chances of a recession. The impact of these measures is impossible to predict, hence our decision.