Covid-19 Triggers Second Worst Sell-off
Global stock markets and in particular the S&P 500 index had once of the largest sell-offs in history as highlighted by the chart above. Only during the 1987 stock market crash ‘Black Monday’ did we have a steeper sell-off with the market falling on average 2.5% per day.
Image source: Tastytrade
FCA acts to improve competition in the investment platforms market
‘While the market is working well for most of its consumers, the package we’ve announced today should make it less expensive and time-consuming for investors to shop around and move to the platform that best meets their needs. As part of that, we believe it is right that we restrict exit fees, so people can move their money freely.’
The FCA found that while competition is generally working well, some consumers and financial advisers can find it difficult to shop around and switch to a platform that better meets their needs. Consumers can find it difficult to switch due to the time, complexity and cost involved – driven in part by the exit charges they incur and difficulties switching between unit classes.
To address the issues uncovered, the FCA is consulting on rules to allow consumers to switch platforms and remain in the same fund without having to sell their investments, and is proposing to ban or cap exit fees.
The proposed restriction on exit fees would apply to platforms, and also firms offering a comparable service to retail clients. The FCA is seeking views from the wider market about how a restriction could work, before consulting on any final rules.
The FCA has welcomed the progress industry is making to improve the switching process, most recently through their STAR(link is external) initiative to improve the efficiency of the transfer process across the retail investment and pensions sectors. The FCA is encouraging firms not already involved in this initiative to consider taking part as a way of improving the switching process and achieving better outcomes for consumers.
The FCA will review progress made by the industry to improve the switching process later this year, and again in 2020, if needed. The FCA will consider taking forward further regulatory action if the efficiency of the switching process does not improve.
Since publishing its interim report, the FCA has seen firms and the industry acting to improve the provision of information about costs and charges, helping consumers shop around. As a result, the FCA is not proposing new rules but will review the progress of industry in 2020/21, and consider if further action is necessary.
Identity Crisis for Gold?
Gold prices hit a five year low yesterday. Many gold shares on the other hand hit decade year lows or in the case of one of the largest gold miners in the world, Barrick Gold Corp. of Canada share prices fell to levels not seen since the 1990’s!
Yesterday’s sell-off can conveniently be blamed on the Chinese who revealed less then steller gold holdings on Friday. Followed with an investor dumping $1.7 billion worth of gold shortly after market opening in Asia causing a “flash crash” of a kind in gold prices which dropped 4% in a matter of seconds.
Gold has traditionally been a good hedge against inflation and a weaker U.S. dollar. Unfortunately neither scenarios are at play with the U.S. dollar acting like a runaway train and Europe battling deflation risks.
But you would think the EU/Greek debt crisis and the Chinese stock market sell-off would have diverted some assets to the safety of gold over past few weeks. Especially considering gold prices are 40% off their peak of $1,900 seen in 2011 and represent good relative value.
Could there be a more serious underlying issue for gold? As an equity investor in gold miners and explorers, I’m concerned about the long-term supply demand for gold. I’m been underweight gold in our portfolios but haven’t abandoned the sector (yet). I see a great short-term trading opportunity in gold shares for active investors. But I also see cracks in the long-term viability of gold as a safe-haven.