European equities: Coronavirus market volatility - performance update
Insights

European equities: Coronavirus market volatility – performance update

Markets are very weak and volatile, as you would expect with such uncertainty around the Covid-19 outbreak.

Some days the moves are indiscriminate and everything plunges to a broadly similar degree, on other days our higher quality names are outperforming. As markets have slumped, and governments and central banks have tried to make sense of what is going on, our portfolios have so far coped very well. Companies that are operationally impacted – restaurants, airlines etc – are seeing severe weakness. Parallel to this is the interplay in the oil market between Saudi Arabia, Russia and the US which has led to sharp weakness in the oil price, and that means the energy sector is also suffering.

We have not needed to undertake much dealing in funds since the end of February – and what we have done has been very much “business as usual”. There have been no major liquidity issues and we have been able to satisfy all client requirements (there is currently no question, for example, of having to “gate” any of our European equity funds). In our smaller companies strategy we have reduced some positions where stocks have performed well in relative terms as they breached our 3% limit on exposure to any stock. We also reduced some of the larger capitalisation names: for example Takeaway.com became a large company following its merger with Just Eat. Mostly we did this just to fund withdrawals.

Looking to the future it is difficult to judge the final macroeconomic or medical outcome with any great certainty. We do not have much strong insight, but nor does anyone – including doctors and governments. China at least is going back to work and seeing very few new cases, with the country reporting no new cases for two days1. Europe, however, is way behind on this trajectory, with Italy and Spain posing big problems. If Germany and the UK go the same way, this will be an even tougher problem short term. But China seems to show that this virus is perhaps not going to last a long time, and there are signs of a peak in some areas of Northern Italy.

We still believe that longer term the effects should generally help our investing style and after some short-term shock maybe a recovery will be in train. Value funds will be having a tough time currently if they are holding banks, for example, as interest rates inflation and growth will remain very low. Instead, in a recession you want hold strong business resilient business models – which we do. Even our cyclicals will win market share as they are strong enough to survive and win market share as competitors disappear. Generally, in a market like this it can be a good idea not to be too active if you are well positioned at the start of the phase: a volatile market means low trading volumes, which means it is expensive to trade, and we would be wasting clients’ money by trading at the wrong price and paying large amounts in transaction costs.

20 March 2020
Francis Ellison
Francis Ellison
Client Portfolio Manager
Share article
Share on linkedin
Share on email
Key topics
Related topics
Listen on Stitcher badge
Share article
Share on linkedin
Share on email
Key topics
Related topics

PDF

European equities: Coronavirus market volatility – performance update

1 The Guardian, China reports second day with no domestic cases, 20 March 2020

Important Information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

Related Insights

28 March 2024

The Good, the Bad and the UK Stock Market

After an exceptional 2022 the UK stock market reverted to type, underperforming in 2023. With money continuing to disappear from the market, two potential catalysts for change have emerged.
Read time - 5 min
22 March 2024

Harry Waight

Portfolio Manager

Simon Haines

Portfolio Manager

Japan: we’re more convinced than ever

Investors are increasingly turning their attention to Japan. We spent two weeks there and met dozens of companies. But which businesses look best placed?
Watch time - 6 min
20 March 2024

Krishan Selva

Client Portfolio Manager

Lin Jing Leong

Senior Sovereign Analyst, Emerging Market Asia

China: bottom-up opportunity as the macro picture slowly improves

While the top-down story has challenges, the notion that China is ‘uninvestable’ is in our view misinformed. We believe company-specific opportunities can be found by looking at trade, value for money and capital return.
Read time - 5 min
28 March 2024

The Good, the Bad and the UK Stock Market

After an exceptional 2022 the UK stock market reverted to type, underperforming in 2023. With money continuing to disappear from the market, two potential catalysts for change have emerged.
Read time - 5 min
26 March 2024

Fixed Income Desk

In Credit - Weekly Snapshot

In Credit Weekly Snapshot – March 2024

Our fixed income team provide their weekly snapshot of market events.
Read time - 5 min
26 March 2024

Ebele Conroy

Investment Analyst, Global Research

Joe Horrocks-Taylor

Senior Associate, Analyst, Responsible Investment

Green machines: the future of transport

The transportation sector has a significant impact on global emissions, but technology innovations, policy changes and shifting behaviours can reduce this. How are the different modes progressing?
Read time - 5 min
true
true

Important Information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

You may also like

Investment approach

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Funds and Prices

Columbia Threadneedle Investments has a comprehensive range of investment funds catering for a broad range of objectives.

Our Capabilities

We offer a broad range of actively managed investment strategies and solutions covering global, regional and domestic markets and asset classes.