Finance Sector Focus The latest news from the sectors that matter to business

Investors shouldn’t panic in face of pandemic, says expert

Investors should sit tight and not get spooked by Covid-19, says a Birmingham wealth management expert. Steve Johnson, managing

partner of Ward End-based investment specialist S Johnson Wealth Management LLP, said that although investors would be worried about the implications of coronavirus, they should not panic as the world’s financial markets would recover in time. He said: “Knowledge conquers

fear and once all the uncertainty over this disappears, the markets will recover. It’s worth pointing out that the markets don’t mind bad news, but what they hate is uncertainty. “From an economic viewpoint,

when supply restrictions lift, demand will surge and suppliers and logistics companies will seek to recover lost profits by putting up prices. This may lead to inflationary pressures, however governments will be loath to impose monetary controls or increase taxation, for fear of stifling growth. “The combination of knowledge

of what is happening plus increased profits will ultimately lead to a bounce in equity prices.”

Steve Johnson: Knowledge conquers fear

‘The current coronavirus crisis shows the value of lots of eggs and baskets – diversity’

Mr Johnson added that there

had been several so-called ‘Black Swan’ events in recent years that had affected the financial markets, including the 9/11 attacks (2001), SARS (2003) and the 2008 banking issues. Of these, 9/11 saw a downturn of 11.6 per cent on the

world’s stock markets, but the recovery only took 15 trading days. SARS was slightly worse, with the markets losing 14.1 per cent of their value, and recovery taking 40 days. While it was still too early to

measure the final effect of Covid-19 on the world’s money markets, Mr Johnson said investors should not panic, and instead remain optimistic. He said: “If nothing else, the

current crisis shows the value of lots of eggs and baskets – diversity. “In the old days, only the very

rich could consider investing in overseas markets via their bankers or stockbrokers. Now, it is possible to invest relatively small amounts via funds across many countries. “Looking to the future, with

recent Government intervention to reduce interest rates, those saving over the longer term in deposit accounts will see their effective returns being negative when set against inflation.” “In general terms if you do not

need the money now, sit still.” Mr Johnson added that his

comments were a general commentary. Investors should speak to their own advisors for advice specific to their circumstances.

Covid-19 triggers profit warnings

Listed companies in the Midlands are issuing profit warnings at an unprecedented rate, with the sharp upturn triggered by Covid-19, according to the latest analysis from accountancy firm EY. Thirty-four profit warnings have been recorded by

EY in the region in the first quarter of this year, more than triple the number (11) issued in the first three full months of 2019. Twenty-two of the warnings issued so far in 2020 specifically blamed the impact of Covid-19 for a material downgrade to their profit expectations according to EY. When analysing all UK profit warnings made in 2020, compared to Q1 2019, EY found the Midlands has suffered a greater year-on-year increase than anywhere else. EY restructuring partner Dan Hurd said: “Covid-19

has profoundly affected businesses’ ability to plan and forecast and is unsurprisingly driving a significant rise in profit warnings. “In the Midlands, the impact on retailers based in the

region is contributing to a spike in warnings. The sector has been heavily impacted by a fall in consumer demand and the closure of physical stores - with the exception of those providing essential supplies such as groceries and pharmaceuticals.”

Dan Hurd: Coronavirus is driving a ‘significant’ rise in profit warnings

Planning must take priority

KPMG is urging businesses to put forecasting, cash preservation, engaging with funders and other stakeholders and accessing Government support initiatives at the top of their to-do list, amidst the ongoing coronavirus crisis. Mark Orton, head of

restructuring at KPMG in the Midlands, is urging businesses to undertake contingency planning in order for them to combat challenges being imposed by the current pandemic. He said: “The best way to

be armed for the challenges of now and beyond is contingency planning.

‘Undertake cash flow forecasts as a matter of urgency’

“Forecasting, cash

preservation, engaging with funders and other stakeholders and accessing Government support initiatives all need to be at the top of the to-do list. “Liquidity is the number one

issue. Undertake cash flow forecasts as a matter of urgency. “The Coronavirus Job

Retention Scheme (JRS), which will see HMRC reimbursing 80 per cent of ‘furloughed workers’ wage costs, is of huge significance and is to be welcomed. “But as it is to be run as a

reimbursement scheme, employers will still be required to make payroll payments, for them then to be recovered once HMRC has established the necessary systems. “To this end, we see funding

Almost a quarter of Covid-19 related profit warnings

were from companies in the travel and leisure sector. Others hit hardest include retailers, housebuilders and media companies. Simon O’Neill, EY’s managing partner in the Midlands,

said: “It will be important to turn to the geographic impact of Covid-19 and to identify what schemes are required to protect and then restore local economies.”

as a key component for many businesses, supplemented by the JRS, and coupled with a greater deployment of ‘Time to Pay’ by HMRC, which relates to deferral of tax obligations, being agreed on a case-by- case basis. This is in addition to sector specific support such as rate payment holidays.”


Sector Focus

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