Craig Hoyda, Senior Quantitative Analyst, Multi-Asset Investing
Coronavirus continues to cast a dark shadow over the global economy, as the number of new cases outside China continues to accelerate.
Hong Kong is offering ‘helicopter money’ cash handouts of HKD10,000 to permanent residents in a bid to counter the economic fallout of the coronavirus. The territory has been hit hard both by the spread of the virus and by last year’s anti-government protests (euphemistically described by HK finance minister Paul Chan as “social incidents”). In his budget this week, Mr Chan said he now expected Hong Kong’s economy to contract by up to 1.5% in 2020.
Globally, the lasting effects of the coronavirus are difficult to quantify, although the International Monetary Fund has provided a ‘guestimate’ of 0.1% off global growth. China accounts for about a quarter of global manufacturing (when measured by value added in its factories) and the potential effects of supply chain disruption are severe.
There have been cluster outbreaks in South Korea, Italy and Iran, and the virus is now present in at least nine European Union member states. This may mean we have passed a defining moment: a shift from epidemic (specific to region or country) to pandemic (spreading globally and present on multiple continents, unconstrained). The World Health Organisation declared that the outbreak has ‘Pandemic Potential’.
Travel restrictions and cancelled sporting events have become common in the worst-affected areas of Italy, and similar restrictions are now being imposed further afield. Next week’s Ireland v Italy Six Nations rugby fixture has been postponed. Fears have been voiced that this summer’s Tokyo Olympic Games could be cancelled. And in the Middle East, Saudi Arabia announced that it was halting the entry of Muslim pilgrims seeking to worship at the holy cities of Mecca and Medina.
The impact on markets has been profound. So-called ‘haven investments’, including government bond and certain currencies, have soared in value in a ‘flight to safety’ from riskier investments. Demand for gold had already pushed the metal’s price towards its 2012 highs. However, this week flows went primarily into US Treasuries, the Japanese yen and the Swiss franc. In the week to Thursday’s close, the 10 year US Treasury yield fell to a record low of 1.24%. The yen appreciated close to 2% and the Swiss franc rose by more than 1% vs the US dollar – not bad for negative yielding currencies!
Mergers and acquisitions
The appetite among financial services groups for data – an increasingly valuable commodity in the digital age – shows no signs of abating. Intuit, owner of QuickBooks, is to buy credit report provider Credit Karma for $7.1 billion. Over the past year, banks and brokerages have engaged in takeovers of financial technology start-ups with a total value of $200 billion. Elsewhere, financial services giant Blackstone is paying £4.7 billion to buy IQ Student Accommodation from Goldman Sachs, in what is the UK’s biggest private property transaction. The deal signals confidence that the UK will continue to attract international students after Brexit.
High street woes
The parlous state of the UK’s high streets was laid bare this week with bad news from two of its biggest players. Hammerson, one of the country’s biggest shopping centre owners, will cut its 2020 dividend by almost half as it shifts its portfolio away from retail parks. Hammerson, which owns Brent Cross in London, has suffered as shoppers move from ‘bricks and mortar’ retailers to ‘click and buy’. The resultant dramatic reduction in footfall means tenants have struggled to pay rents. While the group’s share price rose after Tuesday’s announcement to 227.5p, it remains close to its low point. Back in early 2015, Hammerson shares peaked at 707p.
Meanwhile, fellow property group Intu revealed that it needs £1.3 billion from an emergency rights issue to conclude a debt refinancing. Shares in Intu fell nearly 10% to 13p on Wednesday. In total, its shareholders have suffered losses of 90% over the past year.
Banking jobs axed
The relentless shift to from personal to online interaction also continues to disrupt the financial services industry. Lloyds Banking Group and insurance group Direct Line both said they would cut hundreds of jobs. Each explained the job losses as the by-product of changing customer behaviour. Lloyds said customers were using its branches less often, while Direct Line said people were “increasingly opting to interact with us digitally”.
Overall, the FTSE All-Share was down 5.3% in the week to Thursday’s close. In Europe, the FTSE World Europe ex UK index fell 4.9%. Meanwhile, the S&P 500 plummeted by 7.7%.
And finally…
The UK’s Sussex police force took advantage of a novel criminal identification technique this week – pancake art. Playing on the fact it was Shrove Tuesday they released on Twitter images of people they want to speak to, but embossed onto pancakes. Attributing the pictures to the mysterious (and fictional) “Crepe Artiste Philippe de Pan”, the cops are hoping their efforts will egg on anyone who might be tempted to report unsavoury characters. One Twitter user wrote: “I hope you manage to crepe up on them!” Sussex Police responded: “We’ll try to be syruptitious!”
RISK WARNING
The value of investments, and the income from them, can go down as well as up and you may get back less than the amount invested.
