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Charles Stanley

COVID-19: We’re here to help

In light of the uncertainty we are all facing in our daily lives with the outbreak of COVID-19 coronavirus, I wanted to personally reassure you that Charles Stanley has taken a number of steps to ensure we are operationally and financially prepared for all scenarios. 

Charles Stanley remains a financially sound business with capital and liquidity well in excess of minimum regulatory requirements. As at 30 September 2019, our last published figures, Charles Stanley had cash balances of £77.9 million, no borrowings and a regulatory capital solvency ratio of 206%, putting us in a robust position.

 

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Paul Abberley
Chief Executive Officer

My absolute number one priority is the safety of our clients and staff.


 

29 May 2020 - Covid-19 update from Charles Stanley’s Chief Executive Paul Abberley

In so many ways the crisis has been unique. For example, it’s the first time in more than 220 years that Charles Stanley’s physical offices have been closed. Yet curiously, there is nothing unusual about equity market patterns. Typically, large falls are abrupt and then quite quickly followed by a gradual recovery over 6-9 months. Having lost a third of its value in short order as the crisis emerged, the main UK market has now slowly recovered a half of those losses.

 

A case can be made to support this pattern. The stock market is not a representative slice of the whole economy: it can be argued that listed firms tend to be in areas less dramatically impacted than, for example, local small businesses. For the larger firms, an important part of their profits might come from overseas. Finally, the price of an equity is supposed to represent the value of the company’s profits stretching far out into the future. In the bigger picture, this is just an interruption to that stream of profits. Yet that is also the Achilles heel of the positive investment case. There is an assumption that as we emerge from lockdown, those companies will rebuild those profits. But many of their customers are in that part of economy hit most hard. Profits might be slow to recover, and markets might yet be disappointed. It’s still too early to say that the crisis over for the markets. 

This week Charles Stanley issued its financial results for the year ending March 2020. They have been received positively but most important, confirm once more the strength of our balance sheet and resources.

View our latest results

 

 

Update on current market developments

13 May 2020

After the steep falls in equities seen in late February and March, the financial market environment has improved somewhat, and several factors have combined to boost investor sentiment.

  • In general, the spread of Covid-19 has not been as bad as was feared in the middle of March and so-called infection curves have been flattening (in the UK the rate of infection has now fallen below the key level of 1).
  • There has been an increasing focus on re-opening the economy, with parts of the US likely to follow recent easing measures in Europe.
  • Central bank liquidity injections have boosted portfolio flows into risk assets. For example, the US Federal Reserve’s balance sheet has grown by $2.3trn since March and some of the corresponding increase in cash has flowed into financial assets.
  • A marked improvement in the functioning of the corporate bond market, on the back of central bank bond purchases and an unprecedented commitment on the part of the Fed to purchase the bonds of companies which have been downgraded to below investment grade as a result of the crisis.
  • As markets continued to push higher in April, some investors who had become cautious in March and were keen to recoup losses, began to chase the market higher.  A fear of missing out became an increasing driver of investor behaviour, and increasingly characterised many investors’ mindsets.

For much of the month these factors more than offset the very negative news flow on the global economy, widespread cuts and cancellations of dividends and an unprecedented collapse in the price of Brent Crude oil.  First-quarter US GDP fell 4.8% (seasonally adjusted annualised, or SSA) but the true picture for the quarter is much worse than that given the relatively low weight the statisticians give to March relative to January. 

Looking ahead to the second quarter, the weakness in growth will be significantly worse, as the full impact of the lockdown is felt and estimates are for global growth to decline by roughly -22% (SSA), making the recession the worst seen since the Second World War.

Elsewhere, we are now only beginning to see the impact of this reduced economic activity on corporate earnings.  In the US, with roughly a third of S&P500 companies reporting so far, earnings per share have fallen by an average of -19% on a year-on-year (y/y) basis, with the biggest declines seen in consumer discretionary, materials and industrial stocks. 

Steeper falls in earnings are likely to be witnessed in the second quarter.  However, it has not been all bad news, with the earnings of defensive sectors – healthcare, consumer staples, technology and utilities - holding up much better and for the first quarter have typically grown in the low single figures y/y.

This marked difference in earnings delivery has been reflected in the performance of value versus growth stocks, which has seen the latter outperform by 16% year to date. Given the clear headwinds from the economic cycle we expect this trend to continue.

If we turn to analysts’ estimates, US corporate earnings are expected to fall 20% this year and improve by 30% in 2021.  These earnings estimates are, however, based upon a steady lifting of lockdown measures across the globe which should see a return to much more normal economic environment as we head into the third quarter. However, we would caution that the return to normal could well be a more drawn-out affair, with lingering effects on consumers and corporates alike.  Given this, the recovery in corporate earnings could take a little longer than the market expects.

After a good run during April, we think markets will begin to focus once more on macroeconomic data and incoming corporate earnings, both of which will highlight the challenging environment facing investors. However, we at Charles Stanley are long term investors, so, notwithstanding some shorter-term caution on the equity markets, we still feel the gradual return to a more normal economic environment should ensure that weaker equities prices remain a buying opportunity.

For more market commentary, please visit our news & opinion section of the website.

News & opinion


 

Covid-19: We're here to help

Supporting you through these challenging times

At Charles Stanley, it is business as usual and we are fully operating. Our dedicated teams continue to be available to answer any questions or concerns and provide the personal service and exceptional levels of customer care you need.

Keeping in touch

All our staff can access their office phone and email and will continue to receive calls and emails as usual.

Making deposits

Where possible, please do not to send cheques in the post. Instead, please pay via bank transfer. To prevent fraud occurring, please do not e-mail your bank details, please share them over the phone, via text or through My Charles Stanley.

Sending documents

Our offices remain open to receive post but with a much-reduced staff presence. Therefore, ideally if you need to send any documents to us for any reason, if possible, please can you send them digitally.

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