Recent days have seen declines in equity prices at an unprecedented rate. Indeed, global equity markets have moved from record highs into a bear market in the space of just a few weeks. We had believed that a bear market would require recession and, unfortunately, this now appears to be upon us. In response, recent days have seen widespread and aggressive action from central banks, with interest rate cuts and quantitative easing being restarted and governments, including that of the UK, announcing large fiscal programmes which seek to cushion the impact of widespread economic disruption.
There is little doubt that we now face a serious contraction in the global economy. This will place tremendous strain on both consumers and on corporates and there is a significant risk that the recovery, when it comes, will be impaired by the severity of the downturn.
Over the past month our underlying asset value has declined as equity markets have sold off and as the scale of the downturn becomes clear. Recent days have seen stress building in markets, and it may be that certain investors are now forced sellers, driving prices down in an indiscriminate fashion.
We cannot tell when the current crisis will end. Investors are questioning whether policy action will be effective in shoring up economies, as it has been historically. They are also closely monitoring the spread of COVID-19 and, here, there is some hope that a moderation in the pace of new cases in China and some European countries may indicate that containment measures are effective. Nonetheless, while the downturn will be painful, markets have moved a long way to discount the bad news which is yet to come on the economy and on corporate profits.
It is disappointing for us to lose capital but, for F&C Investment Trust, we have the tremendous advantage of a robust capital structure which has proven resilient through many crises. While the near term will remain challenging, we remain focused on long term opportunity for our shareholders.