Lockdown winners and losers

Yesterday, the Office for National Statistics said that GDP grew “slower than expected” in May, increasing by only 1.8% as people started to go back to work. Although undeniably disappointing for economists, it’s at least a start. There are hopes that this only represents the initial acceleration with the numbers in June and July expected to indicate a much sharper recovery as further restrictions were lifted. In context though, we have a long journey ahead considering that in the three months to May, the UK economy shrank by 19.1%.

UK stocks have yet to recover too. Year-to-date, the FTSE 100 is still about 18% down. Across the pond, however, the S&P 500 has all but fully recovered to its 2020 starting level. In fact, with central banks across the world pumping huge amounts of cash into the system, equities, in general, have rallied. The major indices in Germany, Japan and China have all outrun the FTSE 100. So, why is the FTSE 100 lagging behind?

To answer that, it might be easier to look at how the S&P 500 has recovered so easily. Technology stocks have played a big role in lifting equity indices since lockdown due to people working from home, streaming more home entertainment, communicating digitally etc. It’s not hard to see then, why companies like Amazon, Google and Netflix have trended in the past few months. Netflix, the video-streaming service is up more than 60% year-to-date! The FTSE 100 on the other hand, hasn’t had a tech hero to prop it up over lockdown.

If we look at the composition of the FTSE 100, it’s healthcare, banks and oil that take the biggest share. Whilst healthcare has done well over lockdown, banks and oil have experienced a steady decline. With restrictions being gradually lifted, though, could we see a resurgence? Could the index be good value over the coming months?

Perhaps, but that might depend on government support schemes and a return to pre-lockdown lifestyles. British businesses, for example, have already accessed billions worth of loans through their banks and the government’s emergency finance schemes. There’s also the stamp duty holiday which will encourage homebuyers to take out mortgages with banks. The oil industry too, is looking primed for a rebound as lockdown restrictions are lifted. Saudi Aramco’s CEO, for example, has said that China’s gasoline and diesel demand has already returned to pre-coronavirus levels.

It’s of course, impossible to say where UK stocks are headed but, as with lockdown restrictions, some might see this as an opportune time to come out and play again. Our current range of structured products allows people to take a risk-controlled approach to investing based on the performance of the FTSE 100. In fact, many of the products do not require the index to appreciate in value at all to pay a positive return on investment. Check out our current range here.

Posted: 15 July 2020