As we have said in our Market Reviews since the start of the year, the economic expectations for 2020 were cautiously optimistic. But that scenario changed suddenly as a result various non-economic factors that have had a major impact on the stock markets and, especially, on crude oil.
Coronavirus and the rail blockades in Canada
With the surprising emergence of COVID-19 (the novel coronavirus), global growth targets have been revised downward. The weaker growth outlook first caused the markets to fall; it especially battered the energy sector, as crude oil prices fell along with oil demand, and the tourism sector, but it also hit manufacturing, which is based on global supply chains and heavily dependent on China’s output. In Canada, railway blockades by Aboriginal groups added to this initial headwind.
Democratic primaries and disagreements within OPEC
Since then, the stock markets have fluctuated along with the news, sometimes rising, especially after Joe Biden took the lead in the Democratic primaries, and sometimes falling, as a result of the somewhat sensationalist media coverage of COVID-19.
A major oil price shock was added to the list on Friday, March 6, with the breakdown of the alliance between Russia and Saudi Arabia. The two members of the Organization of Petroleum Exporting Countries (OPEC) disagreed on the strategy to adopt in response to the drop in demand caused by downward revisions to global economic growth. Russia refused to cut its output to shore up the oil price. We don’t know its intentions, but from the events of 2014 it appears that Russia is again trying to weaken the U.S. shale oil industry in order to preserve its market share. The Russians eventually abandoned this strategy because it proved very costly.
Keep the long-term view
The COVID-19 containment measures have had an immediate negative impact on global economic activity, but in the medium term will promote a return to normality by limiting the spread of the virus. The headwinds encountered since the start of the year have been disrupting the markets, but may ultimately lead to pent-up demand, followed by recovery. Monetary and fiscal authorities around the world are prepared to take action to support the economy; moreover, a great deal of bad news has already been priced into asset valuations.
It’s therefore essential that you stick to your strategy and maintain a long-term investment approach. This is the investment philosophy that Gestion FÉRIQUE and its managers abide by. It’s a philosophy that will get you through the more turbulent times and help build your capital over the long term!
This review has been prepared for the general information of our clients and does not constitute an offer or solicitation to buy or sell any securities, products or services and should not be construed as specific investment advice. All opinions and estimates expressed in this document are as of the time of its publication and are subject to change. The information contained in this document has been obtained from sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. The content of this presentation is the exclusive property of Gestion FÉRIQUE and should not be further distributed without prior consent of Gestion FÉRIQUE.