Knowledge and Insight - Investments

For more than 20 years, ISAs have allowed us to save and invest tax efficiently. Although the coronavirus has had a dramatic impact on financial markets, it’s important to carry on using your allowances as we all look forward to better days ahead.

Our lives have been turned upside down by the coronavirus crisis, which is having a profound impact on the global economy and financial markets. Governments are working hard not just to slow the spread of the virus but also to help businesses and their employees. They've announced a range of extraordinary measures, which are being supported by action from central banks.

A plunge in oil prices has sent markets reeling, but the epidemic is still the main concern.

Government budget balances are misunderstood. By politicians — sometimes wilfully — and even by some economists. So it’s no wonder then, if they’re misunderstood by the public.

Global markets have been focusing on US rate cuts over the past few months. But investors are increasingly looking to governments to stimulate growth, with a record 57% of fund managers saying fiscal policy is too restrictive, according to a recent survey of fund managers by Bank of America Merrill Lynch.

The UK’s first December general election in nearly 100 years punctuated an eventful year for politics and the economy. Financial markets experienced a series of mood swings throughout 2019, but ended on a high as investors regained their appetite for risk. Despite ongoing uncertainty, including Brexit and trade tensions between the US and China, we remain positive about the outlook for 2020.

Clearing the hurdles

Ten-year gilt yields rose steadily in the first two months of 2018 to a high of more than 1.6% (figure 6). They fell back slightly from late February, but even at these levels UK government bonds are once again looking like a viable alternative to holding cash in portfolios.

We have long believed that with yields so low, gilts offered little advantage over cash for a typical diversified portfolio and were vulnerable to capital losses. 

The threat of higher inflation and rising interest rates spooked global stock markets in February and pushed up government bond yields. We expect the trend of rising yields to persist and be a dominant investment theme over the coming year, with implications for equities.