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Buying stocks on the coronavirus dip

26th February 2020

Margherita Orlandini, Corporate PR Manager

Commenting on concerns over the impact of the coronavirus on the markets, Trevor Greetham, Head of Multi Asset at Royal London Asset Management said:

Global stocks sold off sharply over the last week on news that the coronavirus has spread to countries outside of China, with the US S&P 500 index dropping more than 7% from its recent all time high.

We are buying the dip in our multi asset funds, moving to a high conviction overweight position in stocks. While it is impossible to know how much economic damage measures to contain the virus will cause over the next few months, markets have a strong tendency to overreact to bad news in the short term and our contrarian investor sentiment indicator is once again registering a buy signal.”

As longer term investors we find it usually pays off to look on the bright side when others are panicking. Virus disruption is very unlikely to force the world economy into recession. We expect to see a large but temporary hit to economic activity followed by a bounce back later in the year that additional stimulus could make stronger than it otherwise would be.

Growth lead indicators were turning positive in early 2020 before news of the virus emerged. We expect the drop in energy prices in response to the crisis to take the steam out of inflation, moving us from a tentative Overheat reading on the Investment Clock model that guides our asset allocation back to the equity-friendly Recovery phase.

While confidence will drop in the near term in response to the virus shock, this could trigger additional fiscal and monetary ease in the US and around the world following China’s lead where such policy moves are already under way. If it becomes clear the virus has reached the US, we may see the Federal Reserve cut rates again and the drop in Treasury yields to a record low will lower mortgage rates and boost an already strong US housing market. In an election year President Trump may also promise additional fiscal stimulus if a US pandemic is declared.

We are not complacent about the risks. We expect markets to remain choppy for weeks or perhaps months as investors weigh up good and bad news on the outbreak and its impact. We will look to trim equity exposure on rallies and buy on dips during this period. With inflation low, the longer term prospects for the world economy and stock markets remain positive, especially if additional stimulus is in the offing.”

- ENDS -

For further information please contact:

Margherita Orlandini, Corporate PR Manager
02032 725 125
07919 171 953

About Royal London Asset Management (RLAM)

Established in 1988, Royal London Asset Management (RLAM) is one of the UK's leading fund management companies, providing investment management solutions to both wholesale and institutional clients such as not-for-profit organisations, local authorities and the insurance sector.

RLAM manages £139 billion of assets and employs 113 investment professionals as at end July 2020. It invests in all major asset classes including UK and overseas equities, government bonds, investment grade and high yield corporate bonds, property and cash.

For professional clients only, not suitable for retail investors.

Issued by Royal London Asset Management Limited, registered in England and Wales number 2244297; authorised and regulated by the Financial Conduct Authority. Registered Office: 55 Gracechurch Street, London, EC3V 0RL.