Our blog

The Capital Blog

Get the latest news & information from the Capital team.

It would have been a brave person to predict a month ago that the FTSE 100 would be hovering around the 5,000 mark, UK interest rates would be at 0.1%, most international travel had been grounded and that schools, shops, restaurants and pubs would all be closed.  I could go on…

Whilst history can offer no comparable peacetime scenario, one thing we have learned over many years is that when we are faced with a crisis, the most important thing is to stay close to and engaged with clients and intermediaries.

It is with that spirit in mind that I am writing this today.

I’m sure you’ve been inundated with corporate updates telling you of the steps being taken to deal with the COVID-19 pandemic.  I won’t burden you with fine details, but I will say that since 5th March our Chief Operating Officer has been chairing daily ‘Cobra’ style meetings which have been framed around eight specific workstreams:

  • Protect our employees’ welfare and jobs;
  • Maintain our critical services to clients;
  • Set up a cross functional COVID-19 response team (the Cobra team) to manage a plan;
  • Ensure and protect liquidity in the business to weather the storm;
  • Stabilise our supply chain;
  • Communicate regularly with our staff and our clients;
  • Practice the plan; and
  • Demonstrate purpose in the community.

To date, the Cobra Plan has worked very well.  From the outset we identified those colleagues that were more susceptible to infection or vulnerable in other ways and gave them the opportunity to work from home, setting them up with the same equipment as they have in the office.  We also identified which colleagues live alone and have provided enhanced support to them.

The proactive steps we put in place resulted in all staff that had been travelling overseas being required to self-isolate for 14 days on their return, many days before this was brought in as a requirement by the government.

As a result of this, one of our staff members, who did contract the virus whilst on holiday in Spain, was isolated and remains living and working in his adapted garage apartment in isolation, preventing any wider contamination in the office and in the community.

Today, we have over 70% of our people working from home which has allowed significant social distancing for the remainder who are working from our four offices in Douglas and Castletown in the Isle of Man, and in Cape Town and Johannesburg in South Africa.  For those still working in the offices, we have plans in place to mobilise full home working within 24 hours’ notice should the situation evolve further, as it has done in the UK and in South Africa overnight.

Our virtualised infrastructure has really come into its own, enabling staff to genuinely work from home in the same way they would from their desks in the office.  All colleagues are equipped with the appropriate IT equipment and the use of Microsoft Teams has been widespread in the business for about 3 years, so familiarity with its video conferencing capabilities is high.

The areas of our business that are absolutely critical in order to maintain uninterrupted client services include:

  • Our Dealing team;
  • Our Investment Management team;
  • Our Payments team; and
  • Our Customer Service and Onboarding teams.

At present these teams are fully staffed by colleagues in Capital House in Douglas and at Great Westerford in Cape Town but can be mobilised to work from home at short notice as the need arises.  We continue to meet our standard service levels and whilst we will endeavour to maintain this position, please be aware that as the ‘lockdown’ situation tightens, it may not be possible in every case.

Our Asset Services and Reconciliations teams are mostly working from home with calls being routed to colleagues’ work phones which have been installed at their homes.  By the end of this week, the same will apply to our Client Onboarding team and our Customer Services team.  At present, service standards are being maintained.

These are turbulent and unprecedented times.  We will continue to communicate with you when we have material updates. You are welcome of course to get in touch with us at any time via your normal route.

I am very grateful for your ongoing support of Capital International Group and I wish you, your business and your family well in managing the impact of the COVID-19 pandemic.

Disclaimer: The views thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.

Two weeks ago, on Monday March 9th, I ran into a colleague who said that the day had been the worst in his entire career.

The global oil sector had crashed by 18% in one day, with the likes of BP and Shell down by over 20%, after Saudi Arabia announced over the previous weekend that it was taking on Russia in an oil price war.

The oil price had collapsed to $30 per barrel from about $45 the previous Friday, a fall of 30%.

Well, I can add that the subsequent two weeks have been the worst in my entire investment experience.

We have just been through one of the worst stock market crashes in history, on a parallel with 1987, and even the Wall Street Crash of 1929.

The fall on Monday the 9th was followed by a 10% drop on Thursday the 12th, after President Trump announced a ban on air travel to the US, and then another 10% drop on Monday the 16th, on fears that the global authorities weren’t doing enough to arrest the imminent damage to the economy caused by fighting the Coronavirus epidemic.

The decline has quickly morphed into the fastest bear market in history, with all the graphs looking like a cliff edge, and almost no bounces or retracements on the way down. Some stocks have returned nearly to the levels they reached back in 2008 or 2009.

The need to impose lockdowns, quarantining and martial law in parts of Europe has obviously been the cause, with the harsh measures taken to protect health causing huge temporary short term damage to the economy.

The latest to recommend these measures was the UK, though we have not yet got to the stage of imposing curfews.

Europe is now the epicentre of the virus, an extraordinary turnaround from two months ago when China was the epicentre. New cases have dropped to almost zero in China, while cases in Western Europe are still growing exponentially.

As a result of all this, Capital Economics forecasts that the UK economy will drop 15% in the second quarter of this year, a massive decline never seen before in the modern economy (the worst quarterly decline during the great financial crisis, or GFC, was -3.2%).

Capital Economics forecast that global GDP will decline by -1% this year, twice as bad as the -0.5% fall seen during the GFC. This could be a tad on the pessimistic side if there is a pick up in the second half, and Goldman Sachs forecasts the global economy still growing in 2020 by 1%.

The sell-off has moved through successive asset classes in turn – first equities, then high yield bonds, property, and then investment grade bonds, gold, and even government bonds (other than the very highest quality), as cash was raised in margin calls or panic selling.

We may now be approaching a buying opportunity in stocks, though this will depend on the economy holding up after the initial Q2 hit, and on the Coronavirus cases plateauing over the summer. The past few days has suggested that markets feel the extraordinary government action taken – particularly in terms of fiscal policy and the massively increased levels of government spending – will be enough to stabilise things.

Crucially, though, the case for accumulating stocks will be most compelling for investors who have a sufficiently long term horizon, and who aren’t buying on margin, leverage, CFDs and so on.

The past month has been a shocking and salutary reminder that equities are a long term investment, and can underperform markedly in the short term.

Fast on the way down, slow on the way back up, as they say.

Disclaimer: The views thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.

COVID-19: Economic Outlook
David Long
 on 
March 23, 2020

The battle against COVID-19 has reached a critical stage and while the news headlines are dominated by the rising daily death toll and appalling situation in the worst hit countries like Italy and Spain, financial markets have stabilised and the mood has shifted from fear and panic to a calmer assessment of the implications for the post-COVID-19 economy.

The FTSE 100 has actually traded sideways then slightly positively for the past two weeks. Crucially, despite the constant flow of bad news, the market has not returned to the low of just under 5000. It did not help to have the Prime Minister, the Health Secretary and the Chief Medical Officer all go down with the virus on Friday, but even then and with more difficult headlines over the weekend the FTSE is still hovering around the 5500 level.

At least for the moment, the selling pressure appears to have been exhausted. Financial markets are forward looking and the market has already priced in much of the daily newsflow, bad though it is. What is unknown is how long the economic lockdown will last for and what progress will be made on testing and treatments.

Across Europe we are seeing the first tentative indications that the rate of new infections is reaching its peak and data from the next few days will be crucial to confirm this. If so, this will mark an important milestone in the management of this virus and greatly informs the statistical models used by the academics and health organisations. This in turn should enable much more precise forecasting and more effective control of its progress.

We are also seeing an extraordinary expansion in the capacity of health services to be able to cope, particularly in countries that have had long to prepare. The UK for example is bringing on stream field hospitals with the help of the military; such as the 4,000 bed NHS Nightingale in London’s Excel centre and similar projects in major cities around the country. Remarkably some 20,000 former NHS staff have returned to work in the past couple of weeks to help man these new hospitals and fight the virus.

Significant progress is also being made in the development of testing and treatment. Abbot industries have developed a simple COVID-19 test that gives results within 30 minutes. Of course it will take time to ramp up production, but this would be a game changer enabling people to confidently and quickly determine if they are infected and to self-isolate early before spreading the virus. Similarly the UK is expecting to start conducting antibody tests later this week, to identify those who have built up some immunity and can safely go back to work.

The production of ventilators is increasing dramatically with a consortium of business groups including Smiths Group, Rolls-Royce, Airbus, Thales and BAE Systems all involved in efforts reminiscent of a wartime economic push. The NHS currently has 8,000 ventilators but is expecting to double this number over the next few weeks and has targeted a total of 30,000 machines.

University College London engineers working with UCLH and Mercedes F1 have developed a new simple device to maintain Continuous Positive Airway Pressure (CPAP) delivering oxygen to the lungs without the need for a ventilator. These devices will enable less severe cases to be treated effectively without the use of a ventilator. If trials go successfully this week, Mercedes expect to produce 1,000 CPAP machines a day from next week. An extraordinary achievement.

Similar developments are progressing across the world and it is becoming clear that our capacity and ability to manage the spread of the disease is increasing extremely rapidly, even before the potential for new treatment drugs and the longer term hopes for a vaccine become a reality.

Cumulatively these developments open up the real prospect of moving into the next stage of managing this pandemic with a gradual return to work, albeit with continuing social distancing measures in place for many months. The pressure on politicians to get the country moving again will start building rapidly and we anticipate some relaxation of the current lock down measures by the end of April. However, it is likely that we will see mini-lock downs throughout the summer as the spread is managed and contained.

The economic fallout from this will still be extreme – perhaps the most severe contraction in global economic output ever recorded. Against this, governments and central banks have announced stimulus measures totalling some $5 trillion dollars and crucially have promised to do whatever it takes. This is a fiscal and monetary intervention on a scale never witnessed before and while in the short term it has been vital to stabilise economies, the longer term implications are harder to assess.

If and when COVID-19 is finally brought under a degree of control, it is possible we will experience a very sharp market recovery as economies spring into life and all that excess money supply floods into stocks. At present the balance of risks is evenly poised and we must expect continued volatility as events play out over the next few weeks.

Disclaimer: The views thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.

Over the last month, COVID-19 has triggered the mass migration of workers from the comfort of their well-heated office blocks to the isolation of their respective homes.

With shared toilet facilities, cozy trips in the lift and numerous virus-harboring door handles to contend with, office environments provide the ideal breeding ground for germs and in these testing times pose a real threat to the health of entire workforces.

In the hope of preventing transmission, thousands of employees have wisely retreated to their homes, wide-screen monitors and swivel chairs in tow.

Working remotely however isn’t all it’s cracked up to be and can present a real challenge for those not accustomed to it. With this in mind, here are some top tips for establishing healthy home-working habits.

Get dressed
Wallowing in a dressing gown all day isn’t a good look and will do nothing for your working mindset. There’s no need for a trouser suit and cuff-links but a little pride in your personal appearance can go a long way. The process of getting dressed also helps to create a distinction between your home and working life.

Create a designated office space
Having a separate study at home is a luxury most of us can sadly not afford. It’s still possible however to establish a good separation between your working space and the rest of your home. Choose a spot and stick to it. Bedrooms are off limits; the space you sleep in should remain a sanctuary reserved solely for relaxation. The kitchen table is always good option if you don’t have a desk elsewhere.

Build a biscuit barrier
With no-one to monitor and judge our every mouthful, we’re reliant on will power alone to prevent our constant grazing throughout the day. If you’re struggling to keep out of the cupboards, try placing more obstacles and distance between you and the snacks. Move them upstairs or somewhere far away. Writing the calorie content on the packet with a marker pen can also help to quash temptation.

Don’t forget to move
With no daily commute, no trips to the 4th floor stationery cupboard and no colleagues to visit at their desks, the working day suddenly becomes even more sedentary. Regular movement can help to reset both your mood and your posture. Set an hourly reminder on your phone to get up and get active. Run up and down the stairs a couple of times, do a lap of the garden or, if you’re swamped, simply stand up and stretch a little. You can also use the time you save on your usual commute for an hour’s exercise later on.

Define your hours
Your work life shouldn’t blend into your home life. There needs to be a strict and distinct line between the two. Set rigid working hours and when you log out for the evening, turn off all notifications.

Take breaks
You may not take many breaks in the office but working in a room full of people inevitably leads to distraction; you aren’t productive 100% of the time. Without those brief chats in the corridor or coffee machine catch ups, it can be easy to burn out at home. To avoid this, be sure to escape your screen every now and then. You could even call up a colleague; they’ll surely appreciate the social contact just as much as you.

It’s a difficult time for us all but working from home is one thing many can do to help protect themselves, their colleagues and their families while COVID-19 continues to pose a risk to health. For those taking their first fledgling steps into the realm of remote working, the above advice should help you to set up a healthy routine and make the most of the time away from the office.

Disclaimer: The views thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.

Yesterday evening we were informed that a staff member of the Group in the Isle of Man had tested positive for the COVID-19 virus. The staff member returned from holiday in Spain on Sunday, 15th March.

The Group had already put in place extensive preventative measures to protect against this risk including the self-isolation and homeworking of staff members returning from Spain and other affected countries.

We are pleased to confirm that the affected person has not come to any of our offices or had contact with any other member of staff or any clients since his return from holiday. As a result of these precautions, we have no reason to believe there has been any risk of direct transmission into the Group environment as a result.

The staff member has been able to function and work from home this week and we are encouraged and thankful that their symptoms have been bearable.

The protective measures the Group has taken since the 3rd of March 2020, with a specific focus on precautionary self-isolation, reducing our staff concentration at all of our work sites, social distancing within the office spaces and moving a significant number of staff to work from home and our business continuity sites have both protected and prepared us well for this eventuality.

The Group will now enhance further the protective measures we have put in place to guard against COVID-19 and will take whatever measures are necessary to protect clients and staff, while maintaining uninterrupted provision of services throughout.

There will be no impact on our services to clients and the Group will function as usual, with a reminder to all staff and clients to be extra vigilant both in the office and at home.

Market Update
David Long
 on 
March 16, 2020
Investment

During the past month, financial markets have experienced extreme levels of volatility and disorderly price action. This was triggered by a unique combination of factors starting with the spread of the Coronavirus outside of China and the WHO’s declaration last week that COVID-19 is now a global pandemic. These fears were then coupled with an oil price shock, together with a perceived lack of coordination in the response from Governments and Central Banks that further unsettled markets.

Over the past three weeks equity markets have fallen by over 30%. The speed of the move has also impacted virtually every other asset class including gold, property, bonds and many alternative investments. Market sentiment is therefore already at extreme levels suggesting that there is a very large amount of bad news now priced into markets.

That is not to say that markets cannot fall further; given their disorderly nature at present, it is quite possible that we may see even more extreme moves before the current volatility reduces. However, we are reaching the point where such price action is driven by irrational fear, rather than a rational consideration of the facts. As we have already seen, any good news now has the potential to drive sharp relief rallies in markets.

It is possible that some investors manage to successfully ‘trade’ this market, but the danger for most is that they turn a paper loss into an actual loss. I am reminded of the words of the great investor Benjamin Graham, who said:

“Price fluctuations provide the true investor with an opportunity to buy wisely when prices fall sharply and sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market”

These are particularly apposite words for the current circumstances. While sharp downward moves in equity markets are extremely uncomfortable, they are notoriously difficult to predict and we reiterate that during such periods of heightened volatility it is critically important that investors keep well-grounded in the longer term view, so as to avoid getting caught out by sudden market movements. Such periods of turbulence often provide the best opportunities for investors to build portfolio long term positions at good entry prices.

We are reviewing our strategies continuously, but given the speed of the moves being experienced in recent weeks, we believe there is little to be gained from selling at these levels and are looking for opportunities to take advantage of market weakness to build quality positions over the coming weeks. We will update you periodically as developments emerge.

Disclaimer: The views thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.

The Capital International Group has moved swiftly to put in place arrangements to mitigate the risks posed by the spread of COVID-19.

At the time of writing the Isle of Man has no confirmed cases of the virus and South Africa has seven. The immediate risk to the Group at the present time remains low. Nevertheless, we are taking our preparations for a more rapid spread of the virus very seriously and we have put in place a range of mitigation measures including:

1. Daily COVID-19 ‘COBRA’ Meetings

• A daily meeting of senior executive and key personnel to coordinate our response;
• Guided by UK/IOM government advice as well as healthcare professionals; and
• A full business continuity plan live test was affected in February.

2. Our First Defence Measures

• Strict hygiene measures have been implemented across all offices and staff, in accordance with official government guidance;
• We have placed a freeze on non-essential business travel;
• Persons at high risk of more severe effects of COVID-19 are to start working from home as a precautionary measure from next week;
• Home care packs will be provided to all self-isolated staff and an enhanced office cleaning regime has now been implemented;
• A schedule of all staff travel is being maintained, with immediate self-isolation for any individuals demonstrating symptoms (none as yet) or having visited affected areas.

3. A More Distributed Working Environment

• Our Mill Court business continuity centre is fully activated with 40 workstations. Our fully virtualised system architecture enables staff to work from any remote Wi-Fi location;
• To minimise potential spread of infection, from next week staff will be distributed between a range of locations including our main offices, the Mill Court BCP site and homeworking;
• In addition, we have a supply of laptops and mobile devices available to senior staff for remote working;
• Meetings are to be kept short and with a minimum of personnel, and we will continue to make extensive use of our videoconferencing facilities whenever possible.

4. Counterparties

• Financial risks to the Group from counterparties continue to be assessed as very low, with no principal market risks maintained within the Group; and
• Our Assets & Liability Committee (ALCO) meet regularly to review changing counterparty risks; and all major counterparties have been contacted to assess their preparedness.

5. Markets and Activity

• Resource priority has been given to critical departments including dealing, settlements, investment management and treasury;
• We will continue to provide regular financial market updates from our investment department; and
• Our system’s architecture has proven capable of managing high transactional volumes.

The Group is well prepared for the spread of COVID-19 and we are doing all that we can to ensure that there is no significant disruption to our client service. We will continue to review developments on a daily basis and take such measures as necessary to ensure that Capital International Group both in the Isle of Man and South Africa can continue to conduct business for clients throughout this volatile and difficult time.

Disclaimer: The views thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.

Saudi Arabia unexpectedly cut its export oil prices over the weekend and increased its production. This was seemingly in retaliation to Russia’s refusal on Friday to agree with OPEC’s proposed actions of reducing supply in response to falling global demand.

The move shocked markets at the open with oil prices falling by around 25% to $32 per barrel. This in turn has triggered a wave of selling in equity markets with the FTSE100 index starting the day 8% lower, although it has subsequently recovered a little and is down 6% on the day at the time of writing.

Arguably, the timing of this move could not have been worse for markets, and it is possible that this was Saudi Arabia’s intention. The next couple of weeks are critical to understanding the likely spread and effects of COVID19 on the global economy and this will inform the next phase for financial markets.

The combination of COVID-19 and today’s oil shock from Saudi Arabia has pushed market sentiment down to extreme levels suggesting that there is a very large amount of bad news already priced into markets.

That is not to say that markets cannot fall further, but we are reaching the point where we would need to see events develop into a full scale financial crisis for them to do so. The bank and corporate sectors are in a much healthier state than in 2008 and central banks are almost certain to react decisively at the first signs of liquidity stress; this should provide support to the market as it adjusts to the emerging situation.

Moreover, any good news now has the potential to drive a very sharp relief rally. It is difficult to know if and when we might get some good news, but there are plenty of possible sources. These include the UK Budget this week, ECB policy meetings and perhaps most significant would be evidence that the rate of acceleration of COVID19 is progressing more slowly than reflected by the worst case scenarios currently priced in.

Of course, it is unlikely that global governments and central banks will be content to let Saudi Arabia effectively blackmail the global economy with this unilateral action and it seems highly likely that some form of coordinated response will be forthcoming.

While sharp downward moves in markets are extremely uncomfortable, they are notoriously difficult to predict and we reiterate that during such periods of heightened volatility, it is critically important that investors keep well-grounded in the longer term view, so as to avoid getting caught out by sudden market movements. Indeed such periods of turbulence often provide the best opportunities for investors to build long term portfolio positions at good entry prices.

We are reviewing our strategies continuously and considering possible responses to today’s movements. However, as previously confirmed, we will take such actions as we feel necessary to both protect investment portfolios and to take advantage of short term market weakness to build long term positions. We will update you periodically as the situation evolves.

Disclaimer: The views thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.