Global Markets to 5th December 2020
- Global equity markets continue to rally as the end of the year approaches.
- The financial markets react well to positive vaccination news and Joe Biden’s staff nominations.
- The UK Chancellor issues a downbeat statement. Meanwhile, Brexit negotiations continue, but an agreement currently seems out of reach.
- Our base case for global equities remains attractive, but we still advise patience.
- The vaccines are a game-changer: they will stimulate the economy and create long-term investment opportunities.
Global Market Summary
Global equity markets had their best November since 1987, boosted by positive news on the vaccine front and announcements about President-Elect Joe Biden’s proposed cabinet positions. Biden’s nomination of Janet Yellen to the position of US Treasury Secretary is seen as extremely sensible: should the Senate approve it, she will become the first woman ever to hold the post.
She is among several women earmarked for top economic positions. Indeed, the new president has pledged to put together a diverse administration, while breaking down a number of barriers and picking senior economic personnel in a bid to lift the US out of its current economic crisis and build for the future.
In the UK, the Brexit drama continues: negotiators on both sides are currently engaged in intense eleventh-hour discussions, but an agreement still seems a long way off. Indeed, some commentators have even suggested that a deal is even more out of reach now than it was this time last week. If an agreement proves impossible, there will be huge disruption to both the UK and the European Union, and costs are likely to be extremely high.
Equally disheartening was the UK Chancellor’s recent statement setting out his forecasts for the economy: it is predicted to shrink by 11.3% this year, with government borrowing reaching almost £400 billion. A significant recovery over the coming years is, however, expected. He also announced a further series of support packages to try and save jobs and businesses – UK unemployment is expected to hit 7.5% by next spring.
Perhaps most disappointing was news that the ambitious plans to roll out gigabit-speed Internet access to every home in the UK by 2025 will need to be downgraded somewhat. Similarly, the government is to cut the rail infrastructure budget by £1 billion.
Given the developments in cloud computing that Silicon Valley and key technology innovators around the world are predicting, the government having to backtrack on its Internet access commitments constitutes a severe blow. Difficulties accessing content because of poor broadband speeds will render the benefits of cloud computing somewhat redundant.
The UK retail sector continues to suffer: the Arcadia Group – Philip Green’s empire – is now in tatters and has fallen into administration, together with Debenhams, putting thousands of jobs at risk.
While consumer spending at stores has fallen dramatically throughout the pandemic (and had been declining steadily before anybody had even heard of Covid), online spending has surged, hitting a record high. This transition is likely to continue for some time, even once the pandemic is over.
According to data recently published by the CEO of Canadian multinational e-commerce company Shopify, 71% of online sales in the US are now made via a mobile device: that figure provides some idea of the profound changes that the retail sector and people’s purchasing patterns are currently undergoing.
Nonetheless, global investments have shown tremendous resilience throughout the year, and indeed since the Great Financial Crisis of 2008. Once the global economic recovery gets under way and inventories start to be restocked in 2021, the global equity markets should continue to be generous to global investors – particularly since governments will keep borrowing at nearly zero interest rates and central banks will remain big buyers of government bonds (to help keep interest rates low).
We continue to believe, therefore, that the base case for global equity markets remains attractive – better value than bonds. But because of interim uncertainties creating waves of short-termism and periods of higher volatility, the best advice is still to be patient.
We also still advocate long-term investing and time horizons that will give us an advantage over the market. And the backdrop to this is the ongoing need to embrace change and attempt to capture the excellent returns that such a strategy is capable of generating. Although this requires patience, it can be very rewarding in the long run.
Finally, as the year draws to a close and we start looking towards next year, the recent vaccine announcements will most certainly constitute a game changer in our fight against Covid. In 2021, we are likely to see a widening out of global asset allocations, investment themes and sector rotations. Our objectives for next year will therefore be to capture further opportunities through our rigid investment process and further enhance the long-term investment performance of our clients’ portfolios.
Peter Lowman is the Chief Investment Officer at Investment Quorum, a Director of the company and an integral member of our investment committee.
This article does not constitute specific advice and investors should bear in mind that capital invested is not guaranteed. Investment Quorum is authorised and regulated by the Financial Conduct Authority.
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