Market Update


John Butters - Chief Investment Officer
30th March 2020


  • We think that the government is likely to follow a strategy of hitting the virus hard with a 2-3 month lockdown while preparing for a large programme of testing and contact tracing
  • We believe that lockdown may be lifted between 21 May and 29 June
  • We anticipate that social distancing measures will remain in place after lockdown is lifted and movement of people within the UK and internationally will continue to be lower than before the epidemic
  • In our opinion, the most likely scenario for the economy is a short but unprecedented fall in GDP, followed by a sharp recovery
  • We believe stock markets could potentially rise if this plan becomes widely adopted and starts to work; on the other hand, they could fall if it seems to be failing
  • From an investment point of view, our perspective is that of a long-term investor. We think the crisis will pass and it does not change our expectation of good long-term returns
  • Please do get in touch if you have any concerns and would like to discuss your portfolio or investments


Global stock markets are now down 17% for the year to date as at Friday 27 March (based on the iShares Core MSCI World ETF), compared to a largest historical decline of 48% since 1999.  Medium-risk portfolios are down by much less than this, and performance remains within the largest historical declines that we have used to test them against our clients’ financial goals.
The media have been reporting the actions taken by the British government to support the economy through this crisis. Rather than repeating this information, we thought it would be more useful to explain what we think is going on: what the government’s plan is for combating the coronavirus, whether it will work, and what the implications are. We are bankers, not epidemiologists, but we are trying to get a grip on the situation and this piece sets out our tentative understanding (please do not rely on it). Some links to papers on what the UK and US governments and central banks have done are below.

In summary, we think the government’s plan is probably to hit the virus hard with a 2-3 month lockdown and then keep it under control by testing a lot of people and tracking down people with whom the infected have been in contact (called “contact tracing”). Versions of this strategy have worked in China, South Korea, Taiwan, Hong Kong and Singapore.
On that basis, we expect lockdown to be lifted in the UK between 21 May and 29 June; that some social distancing measures to remain in place after that; and that after an unprecedented fall in GDP, the economy could snap back.
With the situation so uncertain these are only our best guesses, and we will do our best to keep our clients informed as the situation continues to evolve (and would appreciate hearing their views). We are following the news closely and our private bankers and I are on hand to discuss the situation if that would be helpful.
Numbers in square brackets refer to the links at the end.

What has happened in the past two weeks?

The British government was originally planning [1] to mitigate the coronavirus outbreak by keeping track of cases coming into the country and isolating the infected. If that strategy was overwhelmed, the idea was to delay the peak of the outbreak by closing schools, encouraging home working and reducing large-scale gatherings, and then to mitigate the load on hospitals by tweaking NHS resources.
The government is being advised by scientists from Imperial College, who thought that the original plan would be enough to contain the outbreak. However, as new data began to emerge about how easily COVID-19 could spread – because it is hard to detect in the early stages of an infection – and how deadly it was, the scientists created a new model that painted a much worse picture (published publicly on 16 March). The paper says that, even with the measures to delay the virus envisioned above, 250,000 people could die [2]. The government reacted quickly, imposing a lockdown on much of the country.

What is the government's plan now?

Lockdown alone
In the Imperial paper, lockdown looks like a very bad strategy [2]. In the model, if you impose a lockdown and then relax it, the virus simply bounces back and all you have done is delay the damage. If you keep the lockdown in place, it seems to last indefinitely, until a cure or a vaccine is found.
Some have taken this to mean that a lockdown of six months or more is possible. The situation is so uncertain that I am cautious of ruling anything out, but I think that is unlikely: the economic damage would be huge and unprecedented; large parts of the economy would shut down; it would be hard to restart activity if many companies took on huge debt or went bust; and the vulnerable would suffer the most. I have used a very rough model to estimate that the economic cost of lockdown may exceed society’s willingness to maintain it after three months [6]. I take the Imperial paper as showing that lockdown alone is not a practical response to the coronavirus emergency.
Lockdown plus testing and contact tracing
Some scientists immediately criticised the Imperial paper [3] for failing to consider the possibility of heavy testing to see who was infected combined with tracing of whom they had contacted, further testing of those contacts and quarantine of infected cases. They suggested that these measures could be effective in controlling the outbreak. South Korea [8,9], Hong Kong [10], Singapore [10,11] and Taiwan [12] have all used strategies like this. For now, South Korea seems to be controlling its outbreak without a lockdown [13].
On 20 March, in his first appeal to people to stay at home, Boris Johnson said that the government’s ambition is to “turn the tide” against the coronavirus in three months and eventually to “stamp it out”. He mentioned testing and digital technology (for contact tracing) as important means to that end. This suggests that, from the start of the lockdown, the British government was hoping to follow the South Korea strategy. As we saw above, Britain originally tried to follow this strategy of testing and containment but it seems that the country simply was not ready in time [7]. That is now changing as the government buys tests and invests in contact-tracing technology.
The overall plan
The experience in China suggests that the spread of COVID-19 can be almost halted by lockdown [4]. I expect that the government’s plan is therefore to put a stop to the run-away epidemic in the UK with a similar lockdown and then keep it under control with testing of suspected cases and contact tracing. Epidemiologists are now saying that experience in China and South Korea shows that this approach is feasible [15,16].


If this is indeed the plan, we can start to think about what it means.

  1. Length of lockdown: Lockdown will not last indefinitely. I have used the Chinese experience to estimate that the UK’s lockdown could end by 21 May in a best-case scenario, 5 June in a conservative scenario and 29 June in a pessimistic scenario. That is broadly consistent with what the lead Imperial College scientist is now saying [14].
  2. Ongoing controls after lockdown: When lockdown ends, some social distancing will need to remain in place because the virus will still be circulating. On 24 March, movement in Chinese cities was at around half its January level, albeit rising quickly [16]. As at 28 March, the rate of movement is 36% of normal in Seoul and 56% in Singapore [17].
  3. Indicators for whether the strategy will succeed: So far, lockdown has only worked in China, which had very draconian controls. We can track how likely it is that lockdown will work to control the virus in the UK by monitoring case numbers in Italy, whose outbreak started earlier than ours and which has imposed a lockdown. We can track whether testing and contact tracing are working by monitoring new case numbers in China and South Korea. [31, see page 3 of 37].
  4. Implications for the economy: The shock to the economy has been sudden and huge, and it is unprecedented. That means that we cannot really know how big the hit to GDP will be. Capital Economics has estimated that UK GDP could fall 15% in the second quarter, which is both further and much faster than in the Global Financial Crisis of 2008 or the Great Depression of the 1930s. But Capital Economics also says that the fall could be as much as 20% to 40%. However, if controls are lifted relatively soon then the snapback could be equally fast, partly thanks to huge government support for the economy. Initial indications are that this is happening in China: travel remains much lower than normal but property sales and coal consumption are returning quickly towards normal levels [18].
  5. Implications for stock markets: Stock markets tend to bottom out when things look darkest. If the plan above is being adopted across the developed world then markets could stabilise and begin to rise if the strategy seems to be working. On the other hand, it will be bad for markets if it does not work. In the short term, if case numbers start to rise in Italy, China or South Korea, indicating that the plan is not working, markets may well fall again. The US is something of a wildcard because of its slower response and importance to the global economy: if the epidemic there takes longer to be brought under control then stock markets could languish for longer [31, see page 3 of 37].

Ways in which things could get better or worse

The media have reported experts’ estimates that a vaccine could be available in 12-18 months. However, these estimates are guesswork. It took five years to create a vaccine for Ebola, and that was a record. Technology has improved since then and a trial vaccine has already been injected into human subjects [20], but these new technologies have not been used to defeat a new virus before. It is also a problem that vaccines can be dangerous – an effect called “immune enhancement” can actually help a virus to infect cells – which means that proper testing is essential [19, 21]. And as the Imperial College scientists observe, there is no guarantee that early vaccines will have high efficacy [2]. This explains why it is unlikely that vaccination is a core part of the government’s plan. However, it will clearly be helpful if a vaccine can be found.
A variety of drugs and treatments are being developed or tested against COVID-19, including existing antiviral medicines, blood plasma from people who have had the virus, arthritis drugs, artificial antibodies (potentially early autumn) and new antivirals (2021 at the earliest) [21]. The World Health Organisation has launched a trial of the most promising existing drugs, which are: “[i] an experimental antiviral compound called remdesivir; [ii] the malaria medications chloroquine and hydroxychloroquine; [iii] a combination of two HIV drugs, lopinavir and ritonavir; and [iv] that same combination plus interferon-beta, an immune system messenger that can help cripple viruses.” [22]
We should bear in mind that clinical trials often fail and promising drugs often turn out to be useless or even harmful. It is therefore difficult to predict when a reliable treatment could be available. But a serious and coordinated global effort is under way.
Population immunity
Some disease models have suggested that more people could have the virus than was initially thought. A paper from scientists at Oxford [23] shows that 36-68% of the UK population could be infected, while another paper argues that cases in Italy could be 15 times reported numbers [24]. We may hope that is true, but at the moment these are just models [25].
To discover the reality, what is required is widespread testing not just for active infections, which is what is mostly happening at the moment, but for antibodies to the virus in people’s blood [26]. That will tell us not only who has the virus, but who has had it (and could therefore be immune). Antibody testing is already being rolled out: the UK has ordered 3.5 million tests in the first instance and is planning to begin home testing.
It may turn out that fewer people have already been infected than we might have hoped, but antibody testing will also be useful in the exercise of keeping outbreaks under control once lockdown is lifted, and may be helpful in getting people back to work.
COVID-19 may become less of a threat in the summer (it appears to be more prevalent in the northern hemisphere at present, but that could be reporting bias). On the other hand, even if it does, action to contain outbreaks could become a seasonal necessity, recurring every year [27]. According to one new modelling paper [28], this is likely if immunity to the virus is not permanent – in other words, if you can re-catch it after a few months, as with some cold viruses. If immunity is permanent, the virus could disappear in five or more years after causing a major outbreak.
Fatality rate
As has happened in previous pandemics, the number of infected people who die of COVID-19 is probably inflated because of the lack of testing of people who are not badly ill. Unfortunately, at this point in time we cannot know what the true fatality rate is [29].


We believe that the government is likely to follow a strategy of hitting the virus hard with a 2-3 month lockdown while preparing for a large programme of testing and contact tracing (enabled by technology) once lockdown is lifted.
On the basis of that expectation, we expect the following.

  • Lockdown may be lifted between 21 May and 29 June.
  • Social distancing measures will remain in place after lockdown is lifted and movement of people within the UK and internationally will continue to be lower than before the epidemic.
  • The most likely scenario for the economy is a short but unprecedented fall in GDP, followed by a sharp recovery.
  • Stock markets could potentially rise if this plan becomes widely adopted and starts to work; on the other hand, they could fall if it seems to be failing.

The short-term outlook for markets is unclear because they have already reacted to the crisis: as usual, news is very quickly priced in, which makes it extremely hard to get ahead of market moves. We continue to believe that the right perspective on the epidemic for our investment clients is that of a long-term investor: the crisis will pass, it does not change our expectation of good long-term returns, and investors should continue to own equities.

We are here to discuss these issues

We are here to help. There are no silly fears and no unreasonable questions at a time like this, with scare stories all over the media. If our investment clients have any concern at all then they should feel free to call their private banker for a discussion or to contact me directly.


Important information

The information contained in this article does not constitute financial advice or a personal recommendation.  Past performance is not a guide to future performance. The value of an investment and its income can both increase and decrease and you may not get back the full amount originally invested. The value of overseas investments will be influenced by the rate of exchange.

References & resources
My recent papers on the coronavirus:
[1] Summary of the government’s original “mitigation” plan
[2] Summary of the Imperial paper of 16 March
[3] Summary of scientists’ responses to the Imperial paper
[4] What is the UK government’s coronavirus strategy?
[5] How long will lockdown last?
[6] How long before people feel the costs of lockdown outweigh the benefits?
Other references:
[7] Financial Times on why the UK did not do more testing
[8] Science magazine on South Korea’s strategy
[9] Wired magazine on South Korea’s strategy
[10] National Public Radio on Hong Kong and Singapore’s strategies
[11] Journal of Travel Medicine: Singapore’s strategy
[12] Journal of the American Medical Association: Taiwan’s strategy
[13] Worldometers coronavirus tracking: South Korea
[14] Daily Mail: Prof Neil Ferguson says lockdown could last until June
[15] Stat: Health experts begin to craft lockdown exit strategy
[16] Imperial scientists on how China is controlling its outbreak post-lockdown (see charts on page 4)
[17] Citymapper city mobility index
[18] Capital Economics coronavirus charts page (free to access)
[19] New Scientist on vaccines (paywalled)
[20] The Guardian on vaccine trial
[21] Stat: Summary of potential treatments with forecasts
[22] Science magazine on the SOLIDARITY trial
[23] Oxford COVID-19 model
[24] Italian paper: actual cases could be 15x higher than reported cases
[25] Science magazine on the limitations of disease models
[26] Stat: What is antibody testing?
[27] BBC Science Focus on seasonality
[28] Paper on transmission of the virus after the pandemic
[29] British Medical Journal: comment on fatality rate
[30] My coronavirus dashboard
[31] The best coronavirus tracker (37 different pages)
[32] An excellent primer on how to interpret reported statistics


March 2020
"There have been crises before, and there will be crises again. But buy-and-hold investing has still served investors well." Read the latest market update from John Butters, Chief Investment Officer.



March 2020
Recent stock market movements have many investors on the edge. But if your long-term investment goals haven’t changed overnight, your investments shouldn’t either. Read the latest update from John Butters, Chief Investment Officer.



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