Weekly Market Update: Markets Mixed As Lockdowns Reimposed Over Second Wave Concerns

Weekly Market Update: Markets Mixed As Lockdowns Reimposed Over Second Wave Concerns

Mon 19 Oct 2020

Market Update

Global equities were narrowly down -0.3% on the week in local terms, however Sterling weakness once again boosted returns to British investors. The US was the best performing region, up +1.0% in Sterling terms. This coming week will kickstart earnings season in the US, where earnings are expected to fall sharply relative to last year. UK stocks were down -1.6% for the week, with more regions now entering stricter tiers of lockdown, with the outlook for hospitality in particular worsening. European stocks returned -0.7% in Sterling terms. Emerging Markets again rose up +0.9%, however this corresponds to only 0.1% in local currency terms. Japanese equities sold off sharply, the worst performer of the major markets in local currency terms down -1.8%, though after currency effects this rises to -0.7%. With subdued demand expected in the coming months as a result of further lockdowns, Energy was once again the worst performing sector. This was despite a rise in Oil prices, up +1.4% for the week. IT and Telecommunications were the two best performing sectors. Government bond yields fell, the UK and US 10-year yields were down by 9.8 and 2.8 basis points respectively. The US 10-year is now at 0.75%. Gold fell -0.9% for the week to $1,912.

CIO Analysis

Considering the rest of the world appears to be in the midst of a second wave of Covid-19 infections the export and import figures from China have been extraordinary. Historically Chinese economic figures such as GDP have been hard to verify, however raw import and export figures are more reliable, so the fact the country is importing and exporting over 10% more compared to a year ago needs to be taken seriously. What is more there is no sign of the People’s Bank of China cutting interest rates, another signal that the economy is relatively steady.

For several years our Emerging Market exposure had an underweight to China. These days we have a far more neutral position as the country looks to be the world’s growth engine for some time to come – it is expected to be the world’s largest economy by 2030 according to the IMF. There is a lot of conjecture over which countries will come out of the Covid-19 crisis strengthened and which weakened. It is fair to say that on current evidence China, where cases remain low, stands to gain in the global pecking order.

David Baker, CIO

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