The UK markets started the first quarter of 2023 with enthusiasm, which was swiftly extinguished by mid-March on the back of Silicon Valley Bank’s demise and Credit Suisse’s ‘merger’ with UBS.
In the event, it appears that this ‘banking crisis’ may have been contained quite quickly, but regardless, investors and central bankers will need to retain an element of caution. UK banks are far better capitalised in 2023 than they were fifteen years ago, but it was clear to see that the effect of Whatsapp, Twitter and online banking can have on a ‘bank-run’. It is lightning quick and there was no need for queuing in the streets à la Northern Rock, to pull one’s money. From Archegos to tuna bonds to money-laundering for a Bulgarian drug dealing gang, the last three year’s rap sheet was a sorry fore-warning for the 130 year old institution’s demise.
The consequences of March was a testing of the UK’s big banks share prices and a negative month on the markets. The FTSE 100 and FTSE All-Share were down 3.1% and 3.4% respectively. For reference the CHUK A Inc shares were -0.3%.
Macro factors are still overbearing on markets, with UK inflation figures unexpectedly surprising on the upside (up to 10.4%), partly due to the increase of our fruit and veg in supermarkets. The Bank of England lifted rates by 25bps to 4.25%. However in Europe, Spanish and German numbers edged lower, increasing pressure on the ECB in whether to raise rates or not in their 4th May meeting.
Unsurprisingly, as a consequence of the SVB and Credit Suisse debacle, the Financials sector was hit hardest over the quarter, but a few sectors continue to show encouragement. The Consumer Discretionary businesses have had a particularly good quarter, with businesses such as Howden Joinery, JD Sports Fashion and Greggs proving adept at maintaining their margins and growing their free cash flow whilst negating any substantial effects of inflation.
As we head deeper into 2023, we maintain that the best place for investors to be is in high quality, dynamic and all-weather businesses and at this time the investment case for many companies is exceptionally compelling.
The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.
Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.