Global Finance | 20 March 2023

“We’ve seen a coordinated global response”

Coutts’ investment experts gave their views on current market volatility at an exclusive client event.

The swift response from authorities and “huge amount of liquidity" provided should ultimately help control the current market volatility related to the banking sector.

That was one of the key messages shared with Coutts’ clients at an exclusive virtual event to discuss recent developments.

A panel of experts discussed the recent troubles which saw Silicon Valley Bank collapse and Credit Suisse bought by UBS following emergency talks. They also covered how Coutts is handling this within its portfolios and funds, and what could happen next with interest rates.

David Broomfield, Coutts’ Multi-Asset Strategist, said, “I want to be really clear this morning. This is a crisis of confidence focused on just a few banks.”

Talking about the response from regulators, central banks and other, large financial institutions, David said all concerned had moved “quickly and substantially”.

“We’ve seen a coordinated global response and a huge amount of liquidity made available. This is the lesson learnt from the financial crisis,” he said.

“In particular, the US Federal Reserve has said they’re going to provide unlimited liquidity to any bank. But looking at the data out this morning, the number of banks that have taken up that facility is negligible. So the facility’s there, but probably not needed. Why? Because this is focused on a few banks. Also, if you look at the wider industry, banks generally have had ample liquidity for years.”

David added, “The data shows that the system is well-capitalised, has lots of cash and is well managed. But this is all an effort to ensure there’s confidence in the system.”

The investment perspective – expect opportunities

While there is likely to be further market disruption, there could be buying opportunities for investors too.

Monique Wong, Head of Multi-Asset Portfolio Management at Coutts, said: “We have to separate out the fundamentals from the noise.

“There is discomfort in markets, and there is likely to be more, but in all this there will also be buying opportunities. We saw it during Covid, we saw it during the financial crisis.”

Do remember, past performance should not be taken as a guide to future performance. The value of investments can fall as well as rise, and you may not get back what you put in.

Monique also told the audience that bonds had resumed their role as providing ballast in portfolios after a tough year last year.

She said, “Last year government bonds started from a place during the pandemic where interest rates were near zero, and they suffered as rates increased – but we now have yield. We’re now coming to the end of interest rates rising, and bonds are once again working in our favour.”

Coutts’ exposure

Moving on to talk about any exposure to current events, Monique said, “We were already well-positioned for market uncertainties given recession expectations.

“For example, we are defensively positioned on equities, and our holdings include an allocation to healthcare which holds up well in a high inflation and recessionary environment.

“We also have a strategically high allocation to government bonds, which as I’ve said is providing useful diversification currently.”

What next for interest rates?

Coutts' Chief Investment Officer Alan Higgins gave his view on what could happen next with interest rates in the all-important, globally-influential US.

He said: “Where are we? I would say the majority view is that we’ll see a rise in rates, but I’m going to go with our sister bank – NatWest Markets – and say it’ll be unchanged.

“Big picture – we are coming towards the end [of rising rates] in the US. Inflation is falling, that’s well documented, and it’s expected to fall further. All the leading indicators are there. And that’s when we should see a recovery in risk assets. Our tactical team think it’ll happen later in the year.”

He added, “Historically, as interest rates come down, that’s when equities really could perform.”

The value of investments can fall as well as rise and you may not get back what you put in. Past performance should not be seen as an indication of future performance. You should continue to hold cash for your short-term needs.