Economic & Political Roundup
Kindly sponsored by Allianz
A collation of recent insights on markets and economies taken from the comments made by chairmen and investment managers of investment companies – have a read and make your own minds up. Please remember that nothing in this note is designed to encourage you to buy or sell any of the companies mentioned.
Gold had a very strong month, with concerns over the US’s inability to curtail the spread of COVID-19 and the emergence of a second wave of infections in Europe, impacting sentiment. Weakness in the dollar was the other major theme.
|wdt_ID||Exchange Rate||7/31/2020||Change on month %|
|1||GBP / USD||1.31||4.90|
|2||USD / EUR||0.85||-4.50|
|3||USD / JPY||105.83||-1.50|
|4||USD / CHF||0.91||-3.50|
|5||USD / CNY||6.98||-1.30|
|wdt_ID||Indicator||7/31/2020||Change on month %|
|3||US Tsy 10 yr yield||0.53||-21.80|
|4||UK Gilt 10 yr yield||0.10||-50.70|
|5||Bund 10 yr yield||-0.53||32.60|
Increasing concerns over inflation
Simon Barnard, the manager of Smithson, explains why that in addition to central and government stimuli, changes in unemployment help to explain why global stocks have performed so well. Brunner’s manager, Matthew Tillett, notes that were a sustained economic recovery to materialise, it would be of most benefit to lower quality cyclical stocks, where cash flows and balance sheets have been severely strained during the lockdown. Paul Niven, manager of F&C, expects the acceleration of pre-existing corporate and consumer trends to be one of the pandemic’s lasting legacies. The manager of Alliance Trust raises concern over the prospect of inflation, as a result of the creation of new deposits by central banks.
Herald’s chairman, Ian Russell, says that though valuations have risen precipitously within technology, comparisons to the internet bubble of 2000 are not accurate, as many companies today are cash generative.
Securities Trust of Scotland’s manager, Mark Whitehead, believes that with 10-year government bonds across the developed world delivering near or below zero yields, companies that are able to continue paying dividends look likely to generate substantial returns.
The economic contraction could turn out to be at least twice that of the 2008/2009 financial crisis
James Henderson and Laura Foll, managers of Law Debenture, reflect on the many uncertainties that remain, as the UK eases its lockdown.
Patrick Harrington, manager of Value and Income, says that the outlook for equities has rarely been as difficult to foresee. He explores a number of themes, including cancelled dividends, an economic contraction that could be at least twice as steep as the 2008/2009 financial crisis, and the galvanising impact of an unprecedented injection of liquidity by central banks around the world.
Douglas McDougall, chairman of Independent Investment Trust, says that the long-term implications of unprecedented fiscal and monetary stimuli on the longer-term health of economies are difficult to assess.
The actions of other companies have made it easier for some firms to reduce or suspend dividends
The manager of Aberforth Smaller Companies questions the intentions behind the decision by a number of companies to cut or withdraw dividends. It is argued that some decisions to pass dividends have been made easier by the actions of others.
Ciaran Mallon, manager of Invesco Income Growth, believes that in most cases the cancellation or reduction in dividends has been prudent.
Dan Whitestone, manager of BlackRock Throgmorton, reflects positively on the acceleration in corporate spending on digital transformation to the benefit of digital ready businesses and/or businesses that enable the digital transformation.
Hospitality and aerospace are a long way from recovering
Chelverton UK Dividend’s chairman, Lord Lamont of Lerwick, says that while certain sectors will recover more quickly over the coming months, the final part of any recovery will take longer, as specific sectors such as hospitality and aerospace will need longer.
Global emerging markets
There are tentative signs of recovery in some markets
The manager of ScotGems says that the discrepancy between growth and value seen in developed markets has been no different in the emerging world.
Maria Luisa Cicognani, chair of Mobius, notes tentative signs of recovery are starting to appear in a number of countries.
The manager of Aberdeen Emerging Markets provides a detail overview of market performance and trends across several regions, including Eastern Europe and Latin America.
Biotech and healthcare
It appears increasingly likely that COVID-19 will be with us for some time to come
Paul Major and Brett Darke, managers of BB Healthcare, discuss the main themes in healthcare over the pandemic period. They note that as individuals and investors, we must reach an accommodation with SARS-CoV-2; it could be with us for some time to come. Currently, they say that this view does not feel like the base case assumption.
We have also included comments on North America from Gabelli Value Plus+; Asia Pacific from Invesco Asia; financials from Polar Capital Global Financials; debt from TwentyFour Income and Chenavari Toro Income; renewables from Greencoat UK Wind; commodities and natural resources from BlackRock Energy and Resources Income, and UK property from Ground Rents Income.
Click on the link at the bottom of the page to access the full report.
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