Royal Bank Invest Outlook
Latest investment updates
Here you’ll find your update on Royal Bank Invest and other investment news, to help keep your finger on the pulse.
Quarter 1 2020 investment news
Take a look at the invest activity from 1st January to the 31st March
All the Royal Bank Invest funds fell over the quarter as the coronavirus outbreak swept the world, keeping people inside and hitting businesses hard. Efforts to slow down the spread of the virus meant many households couldn’t spend or earn money as they normally would do, affecting economies and investment markets everywhere.
Investor sentiment quickly faltered as the true scale of the pandemic became clearer. Market volatility reached record levels, with some investors turning to the perceived safety of cash which reduced the demand for bonds and shares.
The shocking impact of the virus has led to many markets pricing in a deep but short recession. The manager believes that a sustained recovery will only happen once the spread of the virus has peaked, and when investors can see a clearer path back to normality.
Against this backdrop, the manager intends to stay invested in shares as far as is prudent, to help avoid crystallising losses and to be in a good place for the recovery when it comes. As always, keeping a long-term view and staying calm during short-term setbacks are priorities.
Financial markets had a dramatic start to the year as coronavirus spread quickly from country to country and tough measures to slow it down were put in place.
Fears about COVID-19 initially focused on the economic impact on China, where the problem started. But as the disease began to cross continents, it became clear the consequences would be far wider than first thought. Stock markets were very volatile after the worst fall for more than 10 years in March.
Central banks around the world acted decisively to boost the money supply with rate cuts and unprecedented levels of quantitative easing. Historic levels of fiscal stimulus were also introduced – £330 billion from the UK government, billions of yuan in loans for businesses affected by the virus from the People’s Bank of China and over $2 trillion from the US government. This is all aimed at making sure businesses have access to money to get them through lockdown.
At the start of March, government bonds went up in value as investors tried to shelter from stock market falls. However, as uncertainty over the economic impact of the coronavirus outbreak rose, safe-haven assets – notably the US dollar and gold – began to rise in value at the expense of bonds.
The pandemic has eclipsed some of the other big events that affected the market mood. For example, stock markets were volatile in January after the US stoked tensions by assassinating Iranian general Qassem Suleimani. Also, Saudi Arabia sparked an oil price war in early March when Russia refused to agree to OPEC oil production limits, sending oil prices down a lot.
Normally these could be expected to dominate headlines on financial pages. But their impact has been overshadowed by COVID-19, showing how quickly investor views can change during a non-financial crisis.
Fund positioning and outlook
The manager reduced the amount invested in shares in March to lower the overall risk profile and create a reserve of cash to take investment opportunities that come following the market falls. For now, the manager is still wary of making big changes while the long-term outcomes aren’t clear.
The demand shock is likely to last throughout the second quarter. But by the end of June the manager believes we could start thinking about what the economy looks like after the pandemic.
It’s worth remembering that economic indicators suggested a period of recovery at the start of 2020 after a slowdown at the end of 2018. While the pandemic has knocked markets off kilter, it’s not a shock caused by economic or financial factors. The manager believes that, when coronavirus recedes, the seeds of economic growth that now lie dormant could spring back to life. It will take time before we see levels of activity get back to what they were, but the case for long-term investing is still strong.