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Multi-Asset – CIO Monthly View – February 2020

Tuesday, March 03, 2020

CIO Monthly View with Will Bartleet, CIO and multi-asset portfolio manager at Pacific Asset Management

Markets fell sharply in the last week of February as investors were spooked by the marked rise in the number of coronavirus cases outside China. It is now clear that hopes that the spread of Covid-19 would be contained within China have been dashed, despite China’s draconian steps to halt the movement of around 50 million people.

The virus has now been detected in every continent apart from Antarctica and has become a concern for all countries around the globe. At the end of February there were nearly 90,000 reported cases, of which nearly 80,000 are within China. Whilst the number of new infections within China are slowing, the number of new cases in the rest of the world is increasing at an accelerating rate. Of most concern, however, is the growing acknowledgment that the reported numbers significantly understate the actual number of individuals that have been infected.

Equity markets bore the brunt of fears over the risks of a global pandemic to global growth and corporate earnings. All equity markets fell in February, however emerging markets were more resilient, being somewhat further through the economic impact of the coronavirus. Our underweight position in equities helped to dampen the downside in markets over the month.

The bond markets moved in anticipation of a response by central banks to the economic slowdown triggered by the virus. As we write, the US Federal Reserve has announced an emergency half percent cut, ahead of the scheduled meeting later in March. It is likely that most central banks around the world will follow suit, including the Bank of England, although clearly the US has more scope to ease than other developed market central banks.

Gold rallied during the month as investors sought safe-haven assets and in response to plunging interest rate forecasts; the expectation of interest rates becoming even more negative in real terms (after inflation) is highly supportive of gold. Finally Diversifying assets returns were broadly flat and remain uncorrelated with both equity and bond markets.

IMPORTANT INFORMATION: Issued and approved by Pacific Capital Partners Limited, a limited company registered in England and Wales, authorised and regulated by the Financial Conduct Authority. The information contained herein is not approved for use by the public and is only intended for recipients who would be generally classified as investment professionals. Information or opinions contained in this article do not constitute an offer to sell or a solicitation, or offer to buy, any securities or financial instruments or investment advice or any advice or recommendation in respect of such securities or other financial instruments. Where past performance is shown it refers to the past and should not be seen as an indication of future performance.

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