Why UK markets have shown resilience in face of pandemic - James Rowbury

On Monday, UK Prime Minister, Boris Johnson, announced a lockdown, ordering citizens to work from home where possible, limit outings, and practice strict social distancing to help slow down the spread of the disease, and to ensure the NHS can cope and help those most in need.

Additionally, all non-essential shops, restaurants, gyms, and pubs have been closed.

These measures pose a significant threat to both businesses and workers, as the number of unemployed is predicted to soar sharply over the upcoming month, with officials revealing that almost 500,000 applicants have already registered for unemployment benefits.

Yet, the Cboe UK 100 has advanced 8.39% over the past week, as investors were relieved by the unprecedented US stimulus package agreement aiming to support American businesses and citizens.

Additionally, sentiment was boosted by many UK companies suspending their dividends and reducing capital expenditure in anticipation of upcoming Government support.

Global markets have similarly been bouncing back, as governments all over the world announced measures to support their people, businesses, and economies.

The US Congress passed a historic US$2tn fiscal stimulus deal to combat the economic damage caused by the pandemic, as jobless claims have surpassed 3.3m in the largest one-week increase ever.

Similarly, Canada has announced a CA$82bn package, which will include income support, wage subsidies, unemployment benefits and sickness benefits.

The European Central Bank also removed almost all limitations from its €750bn bond-buying package, such as increasing the range of eligible bonds from 30-day up to 70-day securities and bflexibility on how much support different countries could receive.

These measures have improved investor confidence, as the US S&P 500 gained 14.09%, Hong Kong’s Hang Seng rose by 7.88% and Japan’s Nikkei 225 jumped 15.73%.

In the UK, Leeds-founded Marks & Spencer announced a suspension of dividends and will review its dividend policy before the release of its full-year results.

The company stated that the Coronavirus will have a heavy impact on profits, as margins will suffer from unsold seasonal stock.

M&S has not benefited as much from panic-buying as other retailers due to its focus on chilled and fresh produce, which are not as popular when stockpiling.

Fortunately, the company has a solid cash balance of £185m and £1.1bn in credit facilities which will help it through the upcoming tough

times.

M&;S’s share price fell by 38.23% over the last month, as the dividend suspension came after last year’s 40% dividend reduction which had already discomforted investors.

While no further guidance has been provided, M&S expects its resilient food business to provide the cash necessary

during these tough times.

By James Rowbury, Investment Research Coordinator, Redmayne Bentley

Please note that investments and income arising from them can fall as well as rise in value and you may lose some or all the amount you have invested.

Past performance and forecasts are not a reliable indicator of future results or performance.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the companies mentioned.