Given the behaviour of financial markets during the first five months of 2020 it looks as if the late JK Galbraith’s claim that “the only function of economic forecasting is to make astrology look respectable” will be proven right twice over.
Few, if any, market forecasters and strategists would have predicted the precipitous and “unprecedented” falls experienced during March. Even fewer would have predicted the speed at which they have subsequently recovered.
If markets sustain the improvements recorded during April and May it is not inconceivable that all the losses sustained during March will have been recovered by the end of June.
It would also, yet again, reflect the underlying optimism of most market participants.
At what turned out to be the nadir of March’s market collapse a poll of institutional investors conducted by Brendan Wood International, a US-based market research firm, found that 80 percent of participants expected markets to regain their January 2020 highs by November. Forty percent thought that markets would recover completely by June.
Not surprisingly, the latter finding attracted a degree of ridicule, not least from this writer, who thought them “barking mad”.
Perhaps one should have minded Mark Twain’s adage: “It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt.”
A full recovery by June will be a remarkable achievement if it comes to pass. It could even be “unprecedented”.
Nonetheless, it could still be wishful thinking.
There is a huge disjunction between financial markets and the global economy which is just beginning to emerge from a two-month Covid-19 induced lockdown. Fundamentals may reassert themselves and the current euphoria could evaporate quickly.
The V-shaped stock market recovery could just as easily develop a W-shapedprofile.
As Benjamin Graham pointed out in The Intelligent Investor Mr Market does tend to exhibit bipolar characteristics.
So what does all this mean for the UK wealth management sector?
The really good news is that 2020 may not end-up being a disastrous year after all. Survey evidence suggests that UK-based wealth managers have not significantly changed client portfolio assets allocations.
Nor is there any evidence that clients have run for cover.
Indeed all the evidence published so far suggests that the risk appetites of the self-invested have increased and this has been very good news for big brokerages such as AJ Bell and Hargreaves Lansdown.
Covid-19 may also have provided a growth catalyst in other respects. If nothing else anecdotal and impressionistic evidence suggests an uptick of interest in wealth and financial planning. And this may pave the way for new business growth at many wealth management firms.
Few firms have escaped the disruption caused by the pandemic. But unlike other sectors of the UK economy wealth management firms have been able to function more or less as normal and book fees accordingly
Indeed increased home or remote working appears to have generated a number of benefits with the prospect of further dividends to come, especially on the costs front.
Many firms have realised that perhaps they don’t need all those very expensive offices in London.
It would be a touch precipitate to claim that 2020 could be yet another record breaking for the UK wealth management sector in terms of income and profitability.
But it could still be a very good year after all.
