The Week UK 01Feb2020

CITY 47

1February 2020 THE WEEK

Talking points

CharlesLi,chairmanoftheHongKong
stockexchange,performedatraditional
dutyonWednesday–handingoutcash-
stuffedredenvelopestocelebratethefirst
tradingdayoftheYearoftheRat.Itwas
hardlythemostauspiciousofstarts,said
LouisAshworthinTheDailyTelegraph.
“Almosthalfatrillionpoundswaswiped
offglobalstocks”thisweekasChina’s
deadlycoronavirusrattledmarkets.
Sometradersfeartheepidemicmayhave
amajoreffectonglobalequitymarkets,
“manyofwhichendedlastweekatall-
timehighs”.SharesinmainlandChina
remained“isolatedfromthefall-out”:
thecountry’sstockmarketswereclosed
duringthenewyearholidayandwill
probablyremain“instasis”untilnext
week,accordingtoBloomberg.ButHongKong’sbenchmark
HangSengindex,whichtrackstheperformanceoflargeChinese
companies,fellby3.5%onWednesday.

Themainworryfor investors,saidDealBookin TheNewYork
Times,isthatthis outbreak“couldundomonthsofeconomic
gainsaroundthe world”.Thebiggeststockmarkethits were
takenbyminers,luxurygroups and airlines, includingIAG,
ownerofBritishAirways,whichhassuspendedflightstoChina.
AmongbigUSlosers wereStarbucks,whichclosedmorethanhalf
its storesinChina,itssecondbiggestmarket,and Apple,which

said“theoutbreakcouldaffectits

financialforecasts”.Plentymoreglobal

companiesarealready“exposed”,with

carmakers,auto-partsuppliersand

luxurygoodsgroups“amongthemost

vulnerable”,saidtheFinancialTimes.

Wuhan,thecityatthecentreofthe

outbreak,“isamajorautomotivehub”:

Nissan,PSA,HondaandGMallhave

plantsthere.Japanesecarmaker

Toyotahasalreadypostponedthe

reopeningof 1 2Chineseplantsuntil

wellintoFebruary.

Willthevirusderailthebullmarket

instocks?Historysuggestsnot,said

DominicFrisbyonMoneyWeek.com.

Themosteasilycomparableepidemic–

theSarsoutbreakof 2003 – hadlittlelong-termimpactonglobal

markets.“Unlessthiscoronavirusmorphsintosomethingmuch

bigger...Idon’tseeithavingabigeffectonWesternmarkets,

beyondcausingsomechoppyactioninthedays–andmaybe

weeks –ahead.”Economistsat GoldmanSachs say “the negative

impacton growth and asset pricesfromviraloutbreakstypically

fadeswithinafewmonths”, said Peter Wellsin theFT.“But any

hittothe economy isunlikelytobe well receivedbyinvestors at

atimewhen theyarepositioned forgrowthtoaccelerate.” Inthe

run-uptothisepidemic, markets havebeenpreternaturallyserene.

“Anythingreallypiercingthecalmcouldprovearude shock.”

Issue of the week: corona contagion

ThecoronavirussentHongKongstockstumbling

Woodford payouts: what the experts think

●Glass half-empty
Whentheformerstar
fund-manager Neil
Woodfordcrashedlast
year,hisflagship fund
wasfrozen.Thisweek,
pension fundsand
some300,000 private
investorsinthe£2.9bn
Woodford Equity
Income fund learnt
how muchoftheir
money they aregetting
back,saidPatrickCollinsoninThe
Guardian.Inanutshell:abouthalf. After
sellingafirst trancheof th efund’s assets,
administrator Link Asset Services con-
firmeditwould make“an initial payout
of just48p- 58p ashare–comparedwith
the100p price at launchfive years ago.
The money comes mainlyfromthe sale
of “liquid” easier-to-sell assets:mostly
sharesin quotedcompanies.Asecond
distributionwill followthedisposal of
“unquotedinvestments”. Don’thold your
breath.“The administratorshave already
warnedthat these assets areproving more
difficultto sellthan expected.”

●Lethalcombo
The drastic fall in thevalue ofWoodford
shares contrastsshar plywith thetypical
31% gain in average equityincome funds
over the past five years,underl ining “the
calamitous failureof Woodford’s stock-
picking”. Duffinvestments includedestate

agentPurplebricks,

financefirmBurford

andthedoorsteplender

ProvidentFinancial.

“Wehavenodesireto

engagein...anunseemly

exercisein schaden-

freude”,notedrival

fundsuperstarTerry

SmithofFundsmith–

before puttingtheboot

intothe “lethalcombin-

ation”of Woodford’s

model:“adailydealingopen-ended fund

withsignificant holdingsin unquoted

companies and large stakesin smallquoted

companies [with] very limitedliquidity”.

●Getting your ownback

The scal eoflosses felt byinvestors

dependson when they bought into the

fund and“whichinvestment platform they

used”, saidSam BensteadinThe Daily

Telegraph.Ifyou bought th rough a

“fundsupermarket”–suchasAJBell

or Hargreaves Lansdown–and want

to complain,yourfirstportofc allisto

contactthem ;theymay direct youtothe

(free) Financial Ombudsman Service. If

you investeddirectlyinWoodford, contact

Link,the administrator.“Leg al action is

also an option.” Some 3,500investors

have signedup with lawfirm Slaterand

Gordontolaunch acase against thefailed

fund manager. Accordingto th efirm“it is

too early to say” whatmay be achieved.

Woodford’s model: “lethal combination”

Mark-isms

At his worst, he was “an unreliable

boyfriend” whose Bank of England

tenure was “bedevilled” by “policy

hints and U-turns”, says The Sunday

Telegraph. Yet he saw Britain safely

through one of the worst political crises

inacentury. As the governor prepares

to leave Threadneedle Street, here is

the world according to Mark Carney:

On limits to central bank policy

“The BoE has long stressed that bank

policies are not the cause of low rates

but responses to them. We are actors

in aplaywritten by others.”

On the perils ofacliff-edge Brexit

“This isatrade deal in reverse, which

in many respects is harder... It is

clearly undesirable to have that

adjustment overnight.”

On the dangers of climate change for

the economy“Companies that don’t

adapt, including companies in the

financial system, will go bankrupt

without question.”

On facing future economic challenges

“There is an old saying that there is

no such thing as bad weather, just

inappropriate clothing... Let us ensure

that the Bank remains well suited to

deliver its mission.”

On life as BoE governor“This role is

just much more public than the same

role in Canada... You’re not always

performing but you’re always in public.”

CouldtherapidspreadofChina’sdeadlyvirusderailstockmarketsaroundtheworld?

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HE TIMES/NEWS LICENSING