It is unfathomable that, amidst all the interminable media commentary on Covid-19, little or no mention has been made of the two global pandemics of 1957/59 and 1968/70. The “Asian flu” of 1957/59 and the “Hong Kong flu” of 1968/70 both bore striking similarities to today’s pandemic. Indeed, there are such striking similarities between the two that we thought it worthy of comment.
Consider the facts
- Both originated in Asia and started with symptoms of a cough, headache and pneumonia-like symptoms
- Both killed between one and five million people and were recorded as pandemics
- Both saw big economic downturns…
- … and big stock market falls
- While both, perhaps ironically, saw vaccines successfully created in double-quick time
- Both vaccines, nevertheless, failed to stop a second wave of infections equal if not more severe than the first
Despite today’s calls that “something must be done,” it may very well be that that in this case, as in the previous two, this virus follows the same broad trajectory; namely, an initial wave cresting quickly as this one has done, followed by a second wave of at least the same severity and then a tailing off as vaccines kick in and the healthcare industry overcomes the disease. (I think we should add the telegraph article from today as a source on this)
To those critics so vocal in their attacks on governments for adopting a cautious approach, it should be remembered that even John Locke, the great English libertarian philosopher of the 17th century on whose principles it is widely believed the basic framework for the principles behind the United States Declaration of Independence in 1776 were based, believed strongly that it was the government’s primary responsibility to protect the lives of its citizens.
Surely it can be argued that a pandemic threat of this nature requires a government to err on the side of caution.
The UK government is rightly cautious and so are we
For now, in portfolios we continue to operate cautiously with a diversified approach and a conservative approach to asset allocation. This has served us relatively well year-to-date, with falls confined to between 1% and ~12% on a net basis across the funds.
What we’d like to see going forward…
Before we become more optimistic on risk assets generally (corporate bonds, equities, and property) we believe certain criteria need to be met:
- A sustainable low point in corporate bond prices (the current US Federal Reserve stimulus programme is manipulating the market in our view and distorting fundamentals). We would like to see how the market settles when this winds down before becoming more positive
- A universal write-down of assets across the property sector
- A stabilisation of global company earnings estimates which are currently in freefall
- Less optimism on behalf of investors generally (in April there were surprisingly strong inflows into global equity funds)
Until this is the case, we retain a cautious and risk averse approach with an emphasis on cash proxies, companies with recurring revenues, and safe-haven assets such as gold. As we move out of the crisis phase, we will look to invest in those businesses that will be clear beneficiaries of some of the sustainable trends that are currently emerging (for example, technology enabling working from home solutions, environmental technology and the seamless move from cash to digital payment alternatives). We look to explore these themes further in a future blog.