Stalin aside, history shows us that few attempts to enact policy by a date conveniently bound up with the beginning or end of a decade usually come to pass – why not 2048 or 2056? At any rate, the imperative to deliver on the pledge would have long since waned by the time the prime minister has been pensioned off to the Lords.
Like everyone else, however, it appears I have been overtaken by events. The market went into freefall, accelerated by the influence of quants, digitalised stop-losses and revised assumptions on the oil price. The details have been repeated ad infinitum, but at the time of writing the FTSE 100 benchmark had partially retraced from Monday’s low of 5918 points, though you imagine that a consensus has already emerged on the direction of travel over the next few weeks.
I confess that my ears have started to prick up whenever one of my fellow commuters’ coughs or sneezes, even though I suspect that the looming coronavirus pandemic isn’t quite as dire as our collective reaction suggests. Of course, when I’m eventually laid up, sweating away in my chamber, I might have a slightly different perspective – stoicism, like hand sanitisers, seems to be in short supply nowadays.
One hopes that retail investors were booking profits on Monday, rather than crystallising losses. Our readers know that if you’re looking to profit from equities throughout your working life and beyond, the value of investment portfolios will invariably be subject to periodic market corrections. Some sectors have proved to be less volatile than others, but the latest sell-off should reinforce the belief that it’s possible to ride out volatile markets by maintaining a long horizon, while building a core holding of quality stocks.
That’s not to say that you shouldn’t look for mispriced assets once the tide rolls out – opportunities abound when markets are in flux. A few weeks ago, I raised the spectre of Baron Rothschild, or at least his contrarian axiom concerned with buying “when there’s blood in the streets”. We haven’t quite moved into the realm of civil insurrection yet, but the clinical outlook is deteriorating and Europe’s fourth-largest economy is in purgatory.
The principal trigger for the contraction in the value of the FTSE 100 was a 20 per cent fall in the value of crude, combined with the heavy weighting (14.38 per cent) afforded UK oil majors BP (BP.) and Royal Dutch Shell (RDSB).
Theories are rife over the underlying geo-political motives behind the apparent spat between Russia and Saudi Arabia, ranging from an attempt to loosen the hegemony of the petrodollar to creating further political instability in Tehran.
Whatever the reality, you can now snap up shares in Shell for 7 times forecast earnings, or roughly 60 per cent of the price from March 2019. Admittedly, future buyback programmes may be scaled back, but the group will beg, borrow and steal to maintain its dividend record. Shell’s fortune’s wax and wane with the underlying commodity price, but the driller has generated $87.6bn (£67.4m) in free cash flow since 2008. The shares now come complete with an 11 per cent yield. However, this can only be interpreted as a measure of market anxiety. Still, prior to this week’s falls, Shell had delivered a total annual return of 5.28 per cent over the previous decade.
Tempting on the face of it, but price expectations for the group’s underlying commodities are at rock bottom. However, it’s worth remembering that a few months ago, doubts had emerged about the true extent of Saudi spare capacity following attacks on Saudi Aramco's Abqaiq facility. It stands to reason that some US production will be curtailed, which is supportive for pricing, though the primary result stateside is likely to be further debt reassignments for the Permian drillers.
A fall in general economic activity will continue to weigh on index and commodity values, while profit warnings and impairments will multiply. But it’s worth remembering that this isn’t like the disruption brought about by a natural disaster such as an earthquake where productive capacity is destroyed. We could be in luck, anyway; reports have emerged that the various strains of the coronavirus can’t cope with the heat, so with any luck the climate emergency will come to our aid by Easter.
