March has been the one of the most volatile months in markets ever. The speed and magnitude of the daily swings in equity, fixed income and commodity markets over the period has been extraordinary. The VIX, a measure of volatility in the US market, reached 85.47 in March its highest level since the Global Financial Crisis.
At the height of the selling panic from the 9 – 18 March, the liquidity in certain fixed income markets barely existed. During this period UK Gilts fell 9.5% , before finishing the month up 1.4%. To try to ward off the worst effects of this crisis, central banks around the world cut their interest rates to record lows. Bond yields fluctuated wildly over the month with benchmark US 10 Year government bond yield finishing March at 0.6% and the UK 10 Year government bond yield at 0.3%. Credit markets were hit particularly hard. We have had reports that dealing spreads had increased three-fold in particular illiquid credits. The IBOXX UK Sterling All Maturities fell 12% over 9 day period and 7.5% over the month.
Gold was used as a source of liquidity as it fell 12.5% intra-month, before rallying to be up 1.8% in the month. A key factor in this market volatility was that a time that Oil was likely to be in less demand as the economy slowed, OPEC and Russia decided to increase supply substantially. Consequently the price of Brent Crude declined 48.5% over the month and 61% in the year to date.
Equity markets were indiscriminate in their selling as investors sought liquidity. MSCI World fell 12.8% during the month, declining 20% over the last 3 months. The scale of recent market falls is not unprecedented, but the speed of the decline is. It has taken the S&P500 only 22 trading days to fall 30% this year. The next closest in terms of time was in the Great Depression when it took 31 trading days.
There were some sectoral highlights in the UK. Pharmaceutical, Food and Drug retailers and Tobacco sectors performed relatively well, but the obvious sectors of Airlines, Industrials, Consumer Services were the worst affected in March. The FTSE All Share fell 15.5% over the month, with the index had falling 25% by the 23 March, then rallying into the month end. Sterling fell 3% over the month against the USD to 1.24 (GBP/USD), but had fallen to 1.14 (GBP/USD) on 19 March. In continental Europe, MSCI Germany fell 16.9%, MSCI France declined 17.6%, MSCI Spain collapsed 22% and MSCI Italy subsided 22.5%, over the month.
As reported last month, Japan’s stock market was the worst affected in February and so fell less than most in March, returning -7.1% over the month. Elsewhere in Asia markets fell further with the MSCI Asia ex Japan declining 11.4%. Emerging markets are not immune either despite China’s relative strength. MSCI China fell 6.7% and MSCI Emerging Markets 12.9%.
Chief Investment Officer