August 2020 – Markets in a Minute
Watch the introduction to hear about another unusual month and some personal updates and news from two advisers. We have an exciting new addition to our Financial Advice Centre team and one of our Adviser’s is up to all sorts for charity, Grace Kelly Childhood Cancer Trust.
All in all, August has been a broadly positive month for investors, even though many of the major factors effecting markets have seen little progress. In this month’s update, we have looked beyond Covid-19 to explore other factors impacting investments.
Markets have navigated the positive and negative news flow without reacting overly excessively to either, an encouraging point that suggests the market is operating in a more rational way than it has done for much of the year.
We hope you find this information useful. If you have few minutes check out our new twitter account @ltd_financial and the ‘meet the team’ series we’re running on here!
As always, please let me know if you have any feedback, questions or concerns by emailing me directly or the office at: office@face-uk.com.
Economic positivity
As the global economy attempts to find its footing after one of the biggest shocks in living memory, encouraging fundamental data suggests that the recovery is in full swing in some parts of the world.
- The UK saw business activity grow at its fastest pace in five years, and Europe similarly saw numbers rising at their quickest rate in two years.
- Whilst the pace in recovery of UK retail footfall slowed mid-month, the last week of August saw another acceleration. Retail parks have been the most resilient with numbers down only 10.6% from 2019 levels, whereas shopping centres and high streets have been hit harder, down 32.4% and 39.1% respectively and we continue to monitor these numbers closely to ascertain whether the forced shift in shopping habits through lockdown become a more permanent trend.
- Revisions upwards of the initial second-quarter gross-domestic product (GDP) numbers for both the US and Germany again highlighted that the economies of developed countries are continuing their road to recovery.
Central bank action continues to be effective
The record-breaking central bank stimulus that has been implemented around the world has continued to play a major part in economic recovery, and the stimulus shows little sign of stopping.
- Jerome Powell, chairman of the Federal Reserve, spoke at the Jackson Hole symposium, announcing a new monetary policy framework for the US based upon average inflation targeting, stating that should ‘excessive inflationary pressures’ build, the central bank would ‘not hesitate to act’.
- Also speaking at the virtual symposium was Bank of England governor Andrew Bailey, who commented that central banks are ‘not out of firepower by any means’.
- EU leaders agreeing to a historic deal on a €750bn recovery fund. The stimulus package comprised of €390 bn in grants and €360 bn in low-interest loans. Although the bulk of this funding will not be available until late 2020, or even in to 2021, it’s a continuation of the positive movements made by central banks.
Other factors in focus
Investment managers must also look beyond the pandemic and the associated economic fallout.
- Tensions between China and several regions, including the US and UK, also escalated to imposed sanctions, Huawei technology bans, as well as territorial disputes in the South China Sea.
- However, towards the end of the month progress appeared to be made in US/China trade talks, as officials continued discussions. Improvements were reportedly being made on key issues such as an increase in number of US products purchased by China, intellectual property rights, and a reduction of tariffs levied by the US.
- The price of a barrel of oil touched its highest level since March 6th but fell back as OPEC+ formally announced the unwinding of output constraints that saw production cut by at least one million barrels per day from the beginning of August.
- Long-serving Japanese Prime Minister Shinzo Abe resigned due to ill-health. At eight years in office he is the country’s longest serving Prime Minister. He will remain in office until a successor is chosen by the Liberal Democratic Party.
Actively managing your portfolios
- Unsurprisingly it was US equities that were the main driver of performance for many of our portfolios during the month. The increased allocation to this area earlier in the year meant these portfolios captured more of this upside. Negative performance came from conventional Fixed Income assets, to which many portfolios currently have an underweight position.
- The increasing appetite to divert supply chains away from solely relying on China has created some interesting opportunities that funds incorporating this asset class aim to capture, particularly due to technology and robotic automation being major sectors in the region.
- We have taken a more strident interest in the Environmental, Social and Governance (ESG) of companies and as such asset allocation was increased in Japanese equities with particularly strong credentials in these areas.
- The investment managers we speak to have a high degree of confidence in Japan controlling a second virus wave due to the population being more compliant with government guidelines surrounding social distancing. The wearing of masks is also more of a norm for the Japanese than many of their western peers. Whilst the resignation of Shinzo Abe brings with it a degree of uncertainty, many see this as an attractive buying opportunity.