Market Update 16 March 2023
By Dan Boardman-Weston, Chief Investment Officer & Chief Executive
Global markets have been roiled over the past week as fears over the health of the banking system have come to the fore. We’ve deliberately taken a few extra days to communicate to you about recent developments as we suspected that the situation would continue to evolve this week and we wanted to try and provide a comprehensive update.
The initial volatility in markets started last week when the 16th largest bank in America, Silicon Valley Bank (SVB), realised losses on some of its investments and attempted to shore up their balance sheet by raising equity from investors. At this point, customers who had money with the bank (mainly technology and healthcare companies) started trying to withdraw their cash, leading to a ‘run’ on the bank which meant investors weren’t willing to provide investment. This was the second biggest failure of an American bank ever and was swiftly followed by the third, Signature Bank, on Sunday. Markets responded negatively to these developments as fears over the health of the banking system increased and the prospect of contagion materialised. The American authorities stepped in on Sunday night to ensure that all customers that had cash at these banks would be protected and would receive all of their cash back. Monday morning came and a deal had been struck that saw HSBC acquire the UK subsidiary of SVB for £1, avoiding state intervention and reducing contagion risk.
Whilst the responses on both sides of the Atlantic had been thorough and (relatively) swift, stock markets on Monday fell sharply as questions started to emerge about other banks. Tuesday was relatively quiet, and markets tried to claw back some of the ground that had been ceded in the past few days. Wednesday, however, was brutal.
Fears emerged over the health of Credit Suisse, after a major investor appeared on television to say they wouldn’t invest any more capital, whilst at the same time the bank’s annual report and accounts made for terrible reading. The shares fell a further 30% (leading to a c.-95% return over the past decade) with key indicators suggesting that they were in serious trouble. European Bourses fell by 4% and the FTSE 100 followed suit by falling 300 points in a single day. There was some relief for Credit Suisse over the course of Wednesday evening and Thursday (today) morning as the Swiss National Bank provided a CHF50bn lifeline. Markets initially responded well to this on Thursday but concerns still remain as to which bank may be next and as to how healthy the overall financial system is. This is a relatively simple analysis of the problems that are occurring, but we can provide further detail if you’d like to learn more.
Markets remain in a challenging spot because of the war in Ukraine, higher interest rates, high inflation, slowing economic growth and now, fears over the health of certain banks. We suspect that there are further twists and turns in this latest saga and the possibility of further weakness in stock markets.
Patience is crucial for investing and the centuries of investing wisdom still point towards long-term returns being good, just as they were during the countless crises that investors have experienced over the last few decades. Warren Buffett, one of the most successful investors of all time, has a succinct way of summarising this, ‘if you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes’.
The last few years have seen the world lurch from crisis to crisis and 2023 seems to be shaping up in the same way. However, in the midst of these crises come the greatest opportunities and I have every confidence that better days for investors lie ahead.
Market Update Seminars – Friday 24 March
For more information and an in-person update from Dan Boardman-Weston, please join us at one of our two market update seminars that we will be hosting on Friday 24 March. One in the morning at the Royal Porcelain Works in Worcester and the other in the afternoon at the Forest of Arden Hotel in Meriden.