Economic and Political Monthly Roundup

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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.

Roundup

As the UK’s Covid vaccine programme continues well on track and the dust has finally settled on Brexit, things may finally be looking up for the market, which has been unloved for some time now. Other countries, however, appear to be going the other way as threats of new variants grow stronger and other issues remain at play, such as ongoing tensions between the US and China. Inflation and rising interest rates are fast becoming investors’ key concerns. The gold price is climbing.

Global

The worst may not be over yet. The past 12 months have offered some lessons for the long-term investor

AVI Global’s chair, Susan Noble, is feeling positive about the Covid-19 recovery and vaccine rollout developments in some countries but believes there is still cause for concern in others, such as Japan.

Majedie’s chief executive William Barlow notes that the proportion of corporate results among companies in the US and Europe beating forecasts is the highest it has been in a decade. However, investors’ concerns have simply shifted to rising inflation and interest rates from deflation and negative interest rates.

The chairman of Securities Trust of Scotland also notes that stock markets around the world are at all-time highs due to having made rapid recoveries from their 2020 lows. However, he thinks that this means valuations have become stretched and, in many sectors, now look extreme.

Tom Slater, manager of Scottish Mortgage, reflects on the past 12 months which he feels have offered some lessons for the long-term investor. He says the strength of stock markets in a period of such economic and social hardship highlights the tenuous link between economic predictions and share prices.

North Atlantic Smaller Companies’ chair Peregrine Moncreiffe anticipates further volatility over the coming year, with weakness in the first half, followed by a strong recovery as the vaccine finally contains the pandemic.

UK

Share prices are generally back to or above pre-pandemic levels, but this suggests price increases will not be as strong as previous recoveries

Jonathan Cartwright, chair of BMO Capital & Income, notes that share prices are generally back to or above pre-pandemic levels, which suggests stock market price increases from this point will not be anything like as strong as the recovery-fuelled gains experienced in the immediate past.

Odyssean chair Jane Tufnell says while investors have priced in optimistic recovery scenarios in some sectors, they are more cautious in others.

James De Uphaugh and Chris Field, manager and deputy manager of Edinburgh, think the UK is rich in stocks that are exceptionally well-placed both operationally and in valuation terms. They say it has undoubtedly been a Cinderella to global equities, particularly since 2016.

Lowland managers James Henderson and Laura Foll say better than expected earnings are driving share prices upwards. Prices have made a good recovery from the levels to which they fell at the end of the first quarter last year.

BMO UK High Income’s manager, Philip Webster, says that what struck him the most about the crisis was the pace of the initial collapse, over just a matter of weeks. But just over a year later, and for the first time in years, he says there feels like a renewed optimism in the UK market with Brexit behind us, an emergence from the pandemic, and valuations that look cheaper than most in the developed world.

This recovery could be far more prolonged and intense than others before

Thomas Moore, manager of Aberdeen Standard Equity Income, believes this recovery could be far more prolonged and intense than previous recoveries.

John Baker and Katen Patel, managers of JPMorgan Elect Managed Income, expect the success of the UK’s vaccine rollout programmes, coupled with policies around stimulus programs, to lift business confidence and market valuations.

Schroder Income Growth’s manager says the economic impact of the pandemic has reiterated the importance of balance sheet strength.

Downing Strategic Micro-Cap chair, Hugh Aldous, notes more interest in corporate substance and value is growing in the UK.

Roland Arnold, manager of BlackRock Smaller Companies, highlights that the Brexit trade deal has removed a huge cloud that has been overhanging the UK market for a number of years. With these concerns increasingly behind us, he feels there is real potential for increased flows into UK equities, particularly further down the market cap spectrum into small and medium sized companies.

Manager Nick Train explains why Finsbury Growth & Income has lagged its benchmark and underperformed at the start of the year, largely due to the vaccine announcement and investors seeing a path out of lockdown. The portfolio did not fall as much during difficult times so there was less scope for a bounce back.

Asia Pacific

Most Asian countries appear to have handled the first coronavirus pandemic wave better than their global counterparts

Bronwyn Curtis, chairman of JPMorgan Asia Growth & Income, notes that most Asian countries have appeared to handle the first wave pandemic better than their global counterparts. But there remain some concerns in other areas, such as China, where geopolitical tensions with the US are still prevalent.

The manager of Schroder AsiaPacific says the spread of returns across markets continued to be high, with technology-heavy Korea and Taiwan the best performing indices across the region. These benefited from upward earnings revisions, driven by ongoing strong export demand for semiconductors and technology products.

Schroder Oriental Income’s manager believes sources of volatility are now easier to identify from the new US administration’s fiscal and foreign policy, the ongoing relationship between themselves and China to the potential for a further COVID-induced slowdown.

Infrastructure

Public finances have been significantly impacted by central bank interventions

Ian Russell, chairman of HICL Infrastructure, says core infrastructure continues to play a role at the forefront of post-pandemic life. He is encouraged by the momentum building future infrastructure procurement.

Phil White, managing partner and head of infrastructure at 3i Infrastructure, notes that central bank interventions which have delivered aggressive monetary policy solutions alongside unprecedented fiscal stimulus have had a dramatic effect on public finances. A consequence of this is likely to be rising taxes to balance deficits, even if delayed until economies have had time to recover.

Other

We have also included comments on Japan from JPMorgan Japanese; Europe from Henderson European Focus and Baillie Gifford European Growth; global emerging markets from Barings Emerging EMEA Opportunities; China from JPMorgan China Growth and Income; Latin America from Aberdeen Latin American Income; flexible investment from Caledonia, Livermore, Capital Gearing and JPMorgan Multi-Asset Growth & Income; private equity from Harbourvest Global private Equity; debt from TwentyFour Select Monthly Income; biotech and healthcare from Polar Capital Global Healthcare; and property from British Land, Helical, Great Portland Estates, LondonMetric Property, Picton Property, Shaftesbury, Ediston Property, Assura, Grainger, and Hibernia REIT.

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June Economic and Political Roundup