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Clients should be prepared for further falls in the market

15 April 2020

Investors should tread cautiously in the immediate aftermath of the coronavirus with the markets likely to suffer further drops, according to Quilter Investors.

Share prices have suffered sharp falls in response to the global pandemic, but have also rallied on the back of various stimulus packages announced by governments around the world.

However, Hinesh Patel, portfolio manager, Quilter Investors, warns that while returns remain attractive in the long-term, markets could drop further in the immediate term.

He said: “Investors need to be careful not to jump straight in just because we have experienced that initial shock of falling share prices followed by a bit of a bounce. While opportunities can present themselves, timing the market is a very difficult thing to do and you are better off staying invested throughout so you do not miss out on the best days in the market.”

As an example, Patel says that over the last 25 years an initial investment of £10,000 would have seen an investor who stayed in the markets throughout the period have a potential return nearly three times greater than that of an investor who missed the 25 best days.

Patel said: “Volatility is going to be present for some time and we are only really at the beginning of this crisis. Many companies are yet to assess the true damage coronavirus has done to their businesses and as such it is easy to see further falls could be possible. While valuations are still not ‘cheap’ per se yet, investors will be best served utilising a multi-asset approach in order to smooth the volatility out as much as possible, while taking advantage of returns when they come.”

During the global financial crisis, the FTSE All-share index did not bottom out until week 25 following the first falls, while during the 2002 period of weak global growth, markets did not reach a low until 39 weeks into the period of volatility.

According to Patel, the current climate is similar to 2002, when economic weakness reverberated around the world while consumption reduced.

He added: “Given consumption reductions are going to be far deeper this time round, it shows markets have a long way to go yet before we can truly say we are out of the woods. Moreover, it takes time for central bank stimulus to feed through to the real economy, with US support still a couple of weeks away from showing signs of its desired effect.”

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