One Year on from the First UK Lockdown

Date posted: 12th Apr 2021

It’s quite remarkably to think how in some ways our lives have changed dramatically over the last 12 months and yet it feels like it was only yesterday we were glued to our television screens hearing the Prime Minister lay out his plans to halt the virus.

We all know what happened next but I thought it would be useful to focus on what happened in regards to the financial markets and a few of the common questions we were asked over the year.


So what happened in the financial markets?

This time last year we were experiencing one of the sharpest market falls in history when equity markets reached their lowest point during the ‘coronavirus crash’. At the time it felt like the sky was falling in, with infection rates accelerating, the economy plunging into recession, companies scrapping dividends, and markets in free fall. The MSCI All Country World equity index fell 31% in total return[1] terms (including dividends) once COVID-19 new cases spread outside China, while government bonds outperformed as investors became more risk averse. The low point came on the 23 March prompting the Fed to say that it was prepared to buy US corporate bonds as part of a new round of quantitative easing (e.g. asset purchases). Global equities then went on to rally 65% from the trough[2], supported by – at various points – fiscal and monetary stimulus, economic recovery and hopes of a successful vaccine rollout.

Data source is Morningstar as at 19/03/2021.  All indices are on a total return basis in sterling terms, gross of any fees. Index key: Emerging Market Equities: MSCI Emerging Markets NR, Developed Market Equities: MSCI World NR, Commodities: Bloomberg Commodity TR, UK Corporate Bonds: ICE BofA 1-10Y Sterling Corp TR, UK Government Bonds: ICE BofA UK Gilt 1-10 TR.


The level of government support that we have seen over the last 12 months has been remarkable, especially if we compare this to the global financial crisis of 2008. The pandemic has resulted in more than four times the amount of fiscal support that we saw during global financial crisis however, currently the pandemic is predicated to have less than a quarter of the economic loss in terms of GDP.

The main winners have been ‘growth’ equities and direct COVID beneficiaries such as Big Tech, following widespread adoption of e-commerce and working from home practices. Despite the virus originating in Wuhan, China was one of the quickest economies to re-open and MSCI China equities rose 28% in 2020[3]. China’s economy benefitted from lockdowns in the West, since services were restricted, but buying goods was not.

Those who happened to make an end of tax year investment in the UK equity market back then, will now be sitting on a handsome return of c.36%![4]


However, why not go to cash to avoid the market fall?

Potentially new or inexperienced investors often ask the question why don’t we go to cash?

Simply, often the worst days in the equity markets are followed by some of the best days. The charts below show the total return and the annualised return from the MSCI UK since 1998.

The first bar shows if you had just bought and held the index, reinvesting dividends you would have received a total return of 131.95%. The next 3 bars shows the impact of missing out on the best 10, 20 and 30 days of the MSCI UK through bad market timing or being sat on cash. For example if an investor had been sat in cash instead of being invested in the market and they missed the best 10 days their investment would have only returned 16.80%. By missing the 10 best days their return has been dramatically decreased.

If an investor decided to turn those paper losses into real ones this time last year I would hate to think of the potential upside they have missed out on.


What now for 2021?

I am sure we are all happy to see the lockdown restrictions slowly lift but in terms of the markets, we are looking towards a medium-term economic recovery driven by vaccinations, but there are likely to be bumps along the way. Whilst economic recovery is clearly a positive, we also need to consider that some level of good news is arguably already in prices, and just as stimulus has been a tailwind to asset prices through 2020, these could turn to headwinds when they are scaled back. Medium-term inflation is something that we are keeping a close eye on but Central Banks have made it clear that they are in no rush to increase interest rates in order to help support the recovery. Overall, we believe the outlook for investments, and particularly equities, is positive but it will be important to be selective and volatility is likely to remain a feature.


Matthew Burgess

Investment Manager


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Issued by Tilney Investment Management Services Ltd, authorised and regulated by the Financial Conduct Authority. Investments go down as well as up and you may not get back the amount originally invested. Past performance is not an indication of future performance. This article is not a recommendation to take or refrain from taking any course of action. It is based on our opinions which may change If you are in doubt as to the suitability of an investment please contact one of our advisers.


[1] FE Analytics, 23/3/21

[2] FE Analytics, 23/3/21

[3] FE Analytics, 23/3/21

[4] FE Analytics, MSCI UK TR from 23/3/20 to 23/3/21

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