WeeklyWatch – Cupid suffers effects of Coronavirus

17 February 2020

Stock Take

Valentine’s Day falls flat in China

Valentine’s Day is undeniably a global retail phenomenon – this year, spending on ‘The Day of Love’ should top $161 billion across the world, according to the US National Retail Foundation. If you’re not a fan of the romance and marketing, blame Geoffrey Chaucer and Margery Brews. In 1382, Chaucer became the first to link the saint’s day with romantic love in his Parlement of Foules. In 1477, Margery Brews, a Norfolk woman, sent the earliest known Valentine’s missive (see ‘Last Word’, below).

However, the rose-embellished retail boost wasn’t felt everywhere. In China, continued lockdowns, factory closures and consumer and tourist caution mean the country faces not only a dangerous virus, but an economic hit as well. Alibaba, usually a beneficiary of such festivals, reported strong earnings for the fourth quarter last week, but the stock price was directed by the CEO’s warning that the coronavirus would hit profits.

China spends to reassure investors

Last Wednesday, Beijing changed how it computes fatalities and infections: confirmed cases in Hubei province (home to Wuhan) thus increased almost ten-fold from the day before, with 14,840 new infections and new fatalities more than doubling to 242. The global death tally is at some 1,770, with more than 70,000 confirmed cases. Hours after the Hubei recount, two of the province’s senior Communist Party officials were ousted.

Sackings aside, Beijing is spending. The People’s Bank of China has already injected $174 billion of liquidity into markets since the virus appeared and cut interest rates (as have central banks in Sri Lanka, Malaysia, the Philippines and Thailand). Are investors reassured?

Alistair Thompson of FSSA, Manager of the St. James’s Place Asia Pacific fund, commented:

“I worry share prices in China are not fully reflecting the impact of the virus. Quality companies look fully valued although we are looking at China Resources Land which trades at a steep discount. We haven’t added to anything in China.”

However, bucking the trend, some companies are “benefiting” from the virus.

Thompson continued:

“We own four companies that are actually beneficiaries of the current situation. CSL is one of the world’s largest flu vaccine manufacturers, while ResMed and Fisher & Paykel are two of the world’s leading masks and respiratory equipment companies – and Ramsay Health Care is a leading private hospital operator. All four companies have seen their share prices rise sharply since news of the virus broke.”

Indeed, what hits China economically these days hits the world. At the time of SARS in 2003, China accounted for 4% of the global economy – today it accounts for 17% and sits at the centre of global supply chains. A recent poll of US economists found they believed the virus will cut US growth by a little under 0.5% in the first quarter. Lower oil demand is another result – the International Energy Agency (IEA) expects a “significant” first quarterly drop in global demand in a decade.

Boris takes back (more) control

With the virus providing the major story on global markets, politics in the US and UK still intruded all the same. In the UK, a Cabinet reshuffle saw Chancellor Sajid Javid resign his post just a few weeks before the current government’s first Budget. Javid said he had been unwilling to sack his own advisers and instead share a pool of advisers with Number 10.

Azad Zangana, Senior European Economist at Schroders, commented:

“It was clearly a disappointing outcome for investors as, in the short term, gilts began selling off in response. To have a Chancellor departing with less than a month before the first Budget since the election looks poor and highlights the splits within the government.”

The change of Chancellor is thought to mark a shift in policy towards a looser fiscal arrangement that enables the government to fulfil its fiscal pledges.

Capital Economics said:

“The surprise change [in Chancellor] … bolsters our view that looser fiscal policy and tighter monetary policy are on the way. This supports our forecasts for a stronger pound, higher Gilt yields, and an outperforming UK stock market over the next couple of years.”

Bernie’s buying

Still, it’s hard to imagine the UK government spending the $97.5 trillion pledged by the rising star of the US Democratic primaries.

Capital Economics commented of Bernie Sanders’s spending:

“Bernie Sanders’ win in the New Hampshire primary has cemented his position as the front runner. Many observers believe that his policies, which could have a detrimental effect on the stock market, will ultimately prove too radical to appeal to mainstream voters [but] it would be unwise to dismiss his chances too quickly.”

Whatever promises he may make to US workers, he will face an incumbent very much at ease with protectionism. Last week, one of the greatest fans of US steel tariffs, JSW Steel, made a surprising call when it took the US Department of Commerce to court…because of US tariffs.

Wealth Check

The British public have had a long love affair with real estate, but a comparison of the returns from property and equities over the last decade might provide a surprise. People often feel compelled to stay invested in bricks and mortar despite evidence of the changed realities such as the rise in property prices and the economic slowdown.

In the Picture

Investing sustainably is one of today’s most important challenges, and it’s all the harder when your focus is emerging markets. In this video Ajay Krishnan of Wasatch, Manager of the St. James’s Place Emerging Markets fund, explains how he approaches the challenge.

The Last Word

“…my right well beloved valentine … [I am] not in good health of body nor of heart, nor shall I be till I hear from you.”

– Excerpt from the earliest known Valentine’s letter, sent by Margery Brews, a Norfolk woman, to John Paston in 1477. The two eventually married.

The information contained is correct as at the date of the article.

First State, Schroders and Wasatch are fund managers for St. James’s Place.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

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