Editor's letter

The silver lining to the coronavirus debacle

There isn’t much obvious upside to the Covid debacle. But perhaps there will be a long-term silver lining, in the form of a push for reform of the government machine.

We have turned to the state to protect us in a most extraordinary way, note John Micklethwait and Adrian Wooldridge in their latest book, The Wake Up Call. We have given up “our most cherished liberties”, including the right to leave our own homes. Terrified on the one hand of death, and on the other, economic ruin, we have allowed the state to regulate – and finance – our every move. 

This could have been nice for those who went into politics to control others: the whole thing has made them very important and very powerful. The problem is that it has also revealed they aren’t very good at using said power. In the UK, it seems we have a substandard health service; an inadequate bureaucracy; and a decision-making system that is both too centralised and too localised. Our government has been growing bigger for years. It has most definitely not been growing better (something Dominic Cummings has long been pointing out). Perhaps we might end this crisis thinking about how to do less, but better, rather than continuing the long-term trend of doing more, and worse?

That said, the UK state is hardly alone in this dismal performance (acting too slowly, then too heavy-handedly, behaving as though the science on the prevention of new viral pandemics can be settled in a matter of months, failing to test, messing up equipment orders, etc). Most European countries have poor records too. By mid-year, even Germany “had a mortality rate that was roughly 20 times as high as South Korea’s and Japan’s”. Almost no one comes out looking good. 

Given all this, while it is fair to price a degree of government incompetence into the UK stockmarket, things may have gone too far. UK equities have underperformed both the US and Europe this year, and have lagged the MSCI World Index by 43% since 2000. The FTSE All Share is on a price/earnings ratio of about 17.5 and the FTSE 250 on 15.1. The US is on 27 and most European markets are over 20. If the UK market were a fund, says William Dinning of Waverton Investment Management, “it would have been closed down or merged with another by now”. 

It’s not just about Covid of course. There’s Brexit (which we remain convinced too many people are irrationally gloomy about); the fall in dividend payouts; and the perception that we are low on high-growth and tech stocks. So what, bar a vaccine, might be a catalyst for change? A trade deal with the EU would cheer a lot of investors up fast (possibly not just in the UK). Failing that, so might the start of next year: the waiting is likely to prove to have been much more worrying than the event itself. Clarity over dividends might help – many companies have already reinstated them or indicated that they plan to, but the removal of all restrictions would be good – as might a realisation that some of our unfashionable big companies are still capable of making real money. The analysts at Stifel like Fidelity Special Values and Edinburgh Investment Trust. On page 26 Max looks at his favourite smaller company trusts – with plenty of growth, plenty of tech, plenty of value and crucially, plenty of good management. 

PS, MoneyWeek is almost 20 – we need your help to celebrate! See here for more.

Recommended

How to find the best dividend stocks
Income investing

How to find the best dividend stocks

Stocks that pay dividends tend to outperform the market over the long run - as well as providing an income. Here, Rupert Hargreaves explains the best …
28 Jun 2022
Boom times for the collectable watch market
Alternative investments

Boom times for the collectable watch market

Vintage and collectable watches are setting records at auction. Chris Carter reports.
28 Jun 2022
What makes up the price of a litre of petrol?
Budget

What makes up the price of a litre of petrol?

The cost of filling up the average car with petrol has risen to over £100. But how is that cost made up? Saloni Sardana explains just what makes up th…
28 Jun 2022
What the end of the 1970s bear market can teach today’s investors
Stockmarkets

What the end of the 1970s bear market can teach today’s investors

The 1970s saw the worst bear market Britain has ever seen, with stocks tumbling 70%. Things have changed a lot since then, says Max King. But there ar…
28 Jun 2022

Most Popular

Market crash: have we hit bottom or is there worse to come?
Stockmarkets

Market crash: have we hit bottom or is there worse to come?

For a little while, markets looked like they were about to embark on a full-on crash. And that could still happen, says Dominic Frisby. Today, he look…
27 Jun 2022
Interest rates are rising, here are the best savings accounts on the market
Savings

Interest rates are rising, here are the best savings accounts on the market

With inflation at more than 9%, your savings are not going to keep pace with the rising cost of living. But you can at least slow the rate at which yo…
24 Jun 2022
Why a recession will do us good
UK Economy

Why a recession will do us good

A period of slimming down is always painful, but it leaves us healthier for the long run, says Matthew Lynn.
26 Jun 2022