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
While the past few months have been decidedly positive, April provided a stark reminder of the uphill battle that remains. India, in particular, is suffering terribly with COVID-19. In developed countries, where most of the vulnerable population has now been inoculated, normalcy appears within touching distance and many commentators are expecting consumer spending to return with a vengeance.
| wdt_ID | Exchange rate | 4/30/2021 | Change on month % |
|---|---|---|---|
| 1 | GBP / USD | 1.38 | 0.30 |
| 2 | USD / EUR | 0.83 | -2.40 |
| 3 | USD / JPY | 109.31 | -1.30 |
| 4 | USD / CHF | 0.91 | -3.20 |
| 5 | USD / CNY | 6.47 | -1.20 |
| wdt_ID | Indicator | 4/30/2021 | Change on month % |
|---|---|---|---|
| 1 | Oil (Brent) | 67.25 | 5.80 |
| 2 | Gold | 1,769.13 | 3.60 |
| 3 | US Tsy 10 yr yield | 1.63 | -6.60 |
| 4 | UK Gilt 10 yr yield | 0.84 | -0.40 |
| 5 | Bund 10 yr yield | -0.20 | -30.70 |
Global
Uncertainty still prevalent
Henderson International Income’s chair, Simon Jeffreys, is still concerned about ongoing uncertainty with regards to the long-term economic out-turn.
Zehrid Osmani, manager of Martin Currie Global Portfolio, expects 2021 to be a year of strong rebound. He also believes it will be a peculiar year where we are faced with sluggish activity early-on before economies start to fully re-open. He thinks earnings will start to normalise in 2022, albeit not immediately back to previous trend levels, for some geographical areas such as Europe, in particular.
Lee Qian and Kate Fox, the managers of Keystone Positive Change, touch on opportunities in the agriculture and fashion industries. On food and agriculture, they believe the global industry is ripe for disruption, from plant-based food to vertical farming.
UK
The success of the UK’s Covid-19 vaccination programme should be positive for equity markets
David Warnock, chair of Troy Income & Growth, highlights a re-pricing of expectations for the trust’s holdings. He says many UK cyclical companies have recently moved towards or beyond peak enterprise value. However the shares of many of the sustainable dividend growth stocks favoured by the managers now trade at levels of free cash flow yield which have previously been a precursor to more attractive absolute returns.
Dunedin Income Growth’s managers, Ben Ritchie and Georgina Cooper, say the development of vaccines for COVID-19 and large-scale inoculation programmes represent a significant – and more positive – change to the prospects for both economies and equity markets. A UK/EU trade deal and further significant fiscal expansion coming in the United States is also beneficial for UK prospects.
Despite the recovery progress, the government must consider the debt created by the pandemic
Alex Wright, manager of Fidelity Special Values, says UK equities, and in particular value stocks, continue to look very attractively valued in a global context. With regards to the coronavirus, he is encouraged by the pace of the vaccine roll-out, the falling numbers of new cases and hospitalisations, as well as the gradual reopening of the domestic economy.
Merchants’ chair, Colin Clark, is more cautious however, stating that even as the recovery progresses, many factors will be in play such as enlarged government debt. He is relieved though to see the end to the uncertainty surrounding post-Brexit trading agreements with the EU, giving markets much needed clarity.
Asia Pacific
Investors did not rotate out of growth stocks and into value names as expected
Nitin Bajaj, manager of Fidelity Asian Values, notes that the belief that investors would rotate out of growth stocks and into value names at the end of 2020 did not play out to the extent he expected.
The managers of Henderson Far East Income, Mike Kerley and Sat Duhra, believe the outlook for dividends in Asia Pacific ex Japan is compelling. The consensus expects ‘mid-teens’ dividend growth, but they think this figure may be conservative considering earnings growth is forecast to be much higher. They also believe the backdrop for higher dividends is firmly in place with companies generating excess cash, having little or no debt and paying out a lower percentage of net profits as dividends than their developed market peers.
James Will, chairman of Asia Dragon, says though we have come some way since the start of the pandemic, we are by no means near the end of this unprecedented era. Near-term challenges for Asian economies and markets could come with US foreign policy developments under President Biden and the progress of vaccine rollouts across the continent.
Nigel Cayzer, chairman of Aberdeen Standard Asia Focus, believes Asian smaller companies could well outperform after a long period of poor performance relative to their larger counterparts. More broadly, he says Asia remains the powerhouse of global growth and that its potential lies well beyond the next decade.
The economic impact of Covid-19 has been more severe in South and South East Asia than North Asia
The manager of Scottish Oriental Smaller Companies attributes strong performance from South Korea and Taiwan to that of its large technology companies, which have benefitted from increased demand for semiconductor chips over the past year. However, he highlights that the economic impact of Covid-19 has been severe in South and South East Asia due to governments not being able to contain the virus as well as those in North Asia. The latter are also more export focused with exports proving more resilient than domestic consumption.
Renewables
2020 has been a difficult year for the European power sector which has hit electricity prices hard
Gresham House Energy Storage’s manager reports that 2020 has been an extraordinary year for electricity markets and may represent a turning point in favour of the battery energy storage sector. He says National Grid has recognised the potential in this space and that it could well be a more cost-effective source of flexible generation than any other alternative. The manager is optimistic that the increasing presence of renewable energy generation on the system will lead to significant and more frequent higher intraday power pricing.
The manager’s report for Aquila European Renewables Income also highlights the uniqueness of 2020, and that it was a difficult year for the European power sector, which suffered from a drop in economic output and oil prices. This, in turn, has had a negative impact on electricity prices.
Other
We have also included comments on North America from North American Income and JPMorgan American; Japan from Schroder Japan Growth and Nippon Active Value; global emerging markets from JPMorgan Global Emerging Markets Income; China from Baillie Gifford China Growth; Thailand from Aberdeen New Thai; biotech and healthcare from RTW Venture and International Biotechnology; debt from Honeycomb, NB Global Monthly Income GBP, Blackstone Loan Financing, Fair Oaks Income, and Volta Finance; hedge funds from Highbridge Tactical Credit; insurance and reinsurance from Life Settlement Assets A; environmental from Impax Environmental; commodities and natural resources from Baker Steel Resources; and property from Standard Life Investments Property Income, BMO Real Estate Investments, BMO Commercial Property, Aberdeen Standard European Logistics Income, and UK Commercial Property REIT.
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