It seems like an age since we wrote our last review at the end of March, when the Covid-19 pandemic was in its infancy. Over the subsequent months life changed in a way that could not have been imagined just weeks earlier. All around the world, people were asked (or told) to stay in their homes to combat the virus. Economies were shut down. Only as I write now do we appear to be returning to some degree of normality, but in doing so we still have one eye on the virus and wonder if it can be contained as our governments hope.

Against this backdrop, we would have expected to be delivering to you further bad news on your investments but, thankfully, that is not the case. The past few months has seen governments and central banks around the world step in with a raft of measures to support citizens, businesses and, in turn, markets. The result of this is that markets have bounced back sharply. Whilst not yet regaining all of the lost ground from the first quarter, in the UK the FTSE 100 is up over 24% (from the trough on 23rd March) and the FTSE 250 is up over 31% over the same period. Credit markets have also rallied, with a broad index of corporate bonds returning over 11%.

UK property assets, having not fallen in the lead up to the lockdowns, have drifted lower. This market still faces some uncertainty as funds remain closed and valuers ask investors to treat their valuations with “material uncertainty”. Until transaction levels improve across all sectors (as they have done in some), we would expect funds to remain closed. True valuations will not become evident until these funds once again open.

Global stock indexes have outperformed the flagship FTSE 100 over the period as can be seen in the chart below. US central bank support has been on an unprecedented scale and it has seen the US market bounce back strongly.

It’s difficult to back against the wall of money being produced by the US central bank, but US stocks are trading at a significant premium to the long-term average (an average that is already higher than that of most developed markets) and, as such, look expensive. There appears to be more value in other areas. We should remember, however, that President Trump is seeking re-election later this year and will be “keen” to see markets continue in a positive manner.

As we have alluded to, markets are currently being driven by central bank activity, rather than real economic activity. In addition, nobody can be clear of the ongoing impact of Covid-19 throughout the rest of this year and beyond.

It is clear, however, that many commentators are now starting to believe that central banks will do “whatever it takes”, with the result being that inflation will likely arrive in the coming years. Whilst this did not happen after the 2008 financial crisis (when many said it would), It seems more likely this time as banks are in a healthier position and are able to pass the money being created into the real economy rather than horde it themselves. Inflation would suit governments, as it reduces the real value of debt; something they will have much of when this crisis is eventually over.