Client Update - Coronavirus - 1st May 2020
Updated: Sep 15
In financial markets, earnings season continues. It was interesting to see last night the prospective fortunes of two of the world’s largest companies. Firstly, Amazon noted caution. Although their results were on track with estimates, they warned of second quarter losses as they spend more money to improve processes and staff safety. This was interesting as Amazon is one of the key companies that has theoretically “benefitted” from lockdown and self-isolation. It turns out Amazon Prime spending is down and the corporate slowdown may well affect the companies Cloud business. And then we have Apple – the guidance for the next quarter was, well, underwhelming.
As we move forward there are lasting effects from Covid-19 evident all around us. A smaller aviation market means ticket prices could rise. After months of staying at home, eventually many people will be keen to travel, but global travel by plane, train or boat might have to change. For example, EasyJet says it plans to initially leave middle seats empty so passengers are not too close to each other - and tickets for a plane with lots of empty seats will be more expensive. Now more than 90% of the planet's children are out of classes, according to United Nations agency UNESCO. The disruption will ripple for some time to come.
It was not that long ago that we wrote about global tensions between China and the US and in the past weeks they have fully re-emerged. China is the source of the virus and the global provider of much of the equipment to fight it. President Trump is once again back to tweeting that the source may not even have been an accident and is in fact a laboratory made virus that only he has seen proof of – he does like a good stab in the direction of Beijing. Trump has also attacked the World Health Organization for being too close to Beijing and there has even been unscrupulous competition for medical resources. How does the world rely less on Chinese goods and resist Beijing's efforts to get the world to play by its rules - while still pursuing co-operation on problems like climate change and future pandemics?
Moving forwards there will be a lot less money in defence budgets for shiny new weaponry - with security being redefined because of the extraordinary weaknesses revealed by the pandemic. National security capability will be judged by stockpiled medical equipment and preparedness for the next pandemic or environmental catastrophe, not just on how many tank brigades can be deployed.
At times like this, when headlines are full of economic Armageddon and we are undoubtedly facing a period of economic downturn, it can be difficult to look through to the other side. Of course, as individuals we are clearly mindful that we are in a time of unprecedented (certainly in our lifetimes) concern and worry, and we are ultimately concerned with the health and welfare of our clients, families and friends. There has been further good news in the battle with Coronavirus as the rate of infection continues to slow and Gilead’s off the shelf drug Remdesevir seems to improve recovery rates from Covid by several days. However, we are, as investors, still responsible for the stewardship of our clients’ finances, and we therefore continue to try to look through to other side, and take advantage of the opportunities that have been presented by steep share price falls. Whilst the markets may have got a little ahead of themselves, we have been given some excellent long-term investment opportunities and we will continue to seek out new ones on your behalf.
As always, we very much hope that you and yours are staying safe and well at this difficult time.