Investors flock to safety

Investors flock to safety

Amidst global uncertainty in the markets, property investment and bonds have seen huge activity over recent weeks and expect more over the coming months.

The turbulence being felt due to the COVID-19 outbreak has meant that the world’s leading markets such as the FTSE 100 and the Dow Jones have seen huge slides as investors and fund managers seek to move into safety.

One of the main issues being faced by companies listed on the stock exchange is that nobody really knows how long government intervention and economic turmoil are likely to last, as Europe struggles to contain the novel Corona virus.

Some have predicted that things could be brought back under control within 12 weeks, whilst others have suggested that rolling lock downs may be in force for up to 18 months whilst a vaccine is developed and mass produced.

Despite unprecedented speed in the development and trials of treatment and vaccines, many believe that the absolute soonest we can expect such a vaccine is the end of the year.

Some have suggested that the warm weather of spring and summer may well relieve the stress on the health services of the world’s leading economies as seasonal illnesses tend to dip around these times, allowing more hospital beds for the ill.

An expected side effect of any run into bonds, however, is that yields drop quickly thanks to increased demand and American Government bonds have done just that, dropping to historically low returns.

The same is true of British Government bonds, and British and Australian currencies took a hammering this week against the Dollar as safe money flocks into Dollar-derived investments.

There is the expectation, however, that this can only last so long as inflation outstrips yields by such a distance as to be effectively negative interest.

Another potential storm on the horizon is that thanks to historically low interest rates in the money markets, and the Bank of England and The Federal Reserve in America have dropped base rates to their lowest in history, that there could be a wave of corporate bankruptcies.

Companies in air travel, hospitality and tourism are particularly vulnerable, and even some in the energy sector are feeling the pinch as oil prices fell to 18-year lows.

The US treasury secretary even warned that US unemployment could reach 20% in the next year as the economic impact is being felt across the world, although this was touted as a worst-case scenario.

Angus Coote, of Jamieson Coote Bonds in Melbourne, said “$2tn worth of corporate debt is due to be rolled over this year but the market has completely frozen. The market is essentially closed.”

With all of that in mind, it would take somebody quite brave to delve into stocks and shares at a time like this, at least with any real confidence.

Bonds are one avenue for safe money, but much more likely is a fast and sizeable movement into UK and US property.

Some commercial property funds have frozen whilst valuations are taking place, as these require expert valuers. Once the true value of the fund is assessed then there is an expectation that a large influx of investment could be coming.

Similarly, in residential property, and Buy-To-Let, that UK property is in an excellent position to perform strongly in such a crisis, with the indicators positive that mortgage applications, acceptances and completions are up year-on-year.

Secondly, yields and property prices are increasing at a time when demand is also rising sharply. Of course, the more demand increases in uncertain times, so will prices thanks to a deficit in supply and demand.

One thing we can be sure of is that markets aren’t set to calm in the coming months, and property is very likely to see the benefit in the short term.

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