Investment Blogs

Please see below article received from Brewin Dolphin yesterday evening, which analyses the performance of markets in relation to the big news events of the past week. 

Global equities were mixed last week after renewed lockdown restrictions in Europe dented hopes of a broad economic reopening.

Stock markets in Asia suffered the most, with Japan’s Nikkei declining 2.1% and Hong Kong’s Hang Seng falling 2.3%. In Japan, the recent lifting of the state of emergency in Tokyo provided some optimism, but this was outweighed by concerns that Europe’s third wave of Covid-19 infections could delay the global economic recovery.

France’s CAC 40 ended the week in the red after the country extended its lockdown to cover a third of the country. Germany’s Dax and the UK’s FTSE 100 posted gains of 0.5% and 0.9%, respectively, following a rebound on Wall Street and positive UK retail sales data.

In the US, the S&P 500 edged up 1.6% following Joe Biden’s pledge to vaccinate 200m Americans in the first 100 days of his administration – double his previous target. Energy stocks performed particularly strongly after the closure of the Suez Canal boosted oil prices. The Nasdaq declined 0.6% amid ongoing interest rate and inflation concerns.

Stocks flat after hedge fund fire sale

Stock markets were largely flat on Monday as investors turned their attention to the fall-out from the collapse of family office hedge fund Archegos Capital Management.

Archegos was forced to sell billions of dollars’ worth of shares after its positions turned sour, prompting a margin call from its prime brokers. Nomura and Credit Suisse, who were among the banks handling Archegos’ trades, warned of significant losses after Archegos defaulted on the margin calls, forcing brokers to dump shares.

So far, the impact of the fire sale has been limited to the stocks that were part of Archegos’ portfolio and its banking and brokerage partners. The Dow edged up 0.3% on Monday, while the S&P 500 and the Nasdaq ended the day down 0.1% and 0.6%, respectively.

European shares also managed to brush off the fall-out from Archegos, with the STOXX 600 adding 0.1% and Germany’s Dax gaining 0.5%. The FTSE 100 closed down 0.1% as the pound gained 0.03% on the dollar.

The FTSE 100 was up 0.7% in early trading on Tuesday, following encouraging news about the vaccine roll out in the UK and the US.

Suez Canal blockage disrupts trade

Last week’s headlines were dominated by the blockage of the Suez Canal – one of the world’s busiest trading routes. On 23 March, the 200,000-tonne ship Ever Given ran aground, resulting in a queue of approximately 370 ships either side. Some ships resorted to rerouting around the southern tip of Africa.

Around 12% of world trade flows through the canal, carrying more than $1trn worth of goods every year. Delays can cause severe disruption to supply chains, ultimately leading to a shortage of goods and higher prices. On the day after the ship ran aground, there was a 5.8% spike in the price of Brent crude oil.

The Ever Given was finally freed yesterday (29 March), but clearing the backlog of container vessels, tankers and bulk carriers is expected to take several days.

Europe extends lockdown restrictions

Last week also saw renewed lockdown restrictions in several European counties, as a third wave of Covid-19 infections spreads across the continent.

Data released on Sunday revealed the number of new Covid-19 patients in intensive care units in France has risen to 4,872 – close to the November peak but below the high of 7,000 in April 2020. In Germany, the incidence of the virus per 100,000 rose to 130 on Sunday, from 104 a week ago.

Rising infections, a slow vaccine rollout and renewed lockdown measures are threatening Europe’s economic recovery. The European Commission is calling for tougher controls on vaccine exports, after its own data suggested 77m doses have been exported outside the bloc, while 88m doses have been delivered to its members.

Vaccine rollout affecting services recovery

The speed at which vaccines are being distributed is having a profound effect on the recovery of the global services sector. In the eurozone, the manufacturing PMI has surged to a three-year high, whereas the services PMI is stuck in contractionary territory below 50. The recovery in services is expected to be pushed back because of delays in issuing the vaccine and the surge in new coronavirus cases.

In contrast, the UK’s services sector is outpacing manufacturing for the first time since the start of the pandemic. In March, the services PMI rose to a sevenmonth high of 56.8, while the manufacturing PMI stood at a three-month high of 55.6. The rebound in services suggests businesses are getting ready for a reopening from mid-April.

Meanwhile, the US manufacturing PMI rose to 59.0 in March, while the services PMI increased to 60.0 from 59.8. The University of Michigan revised its gauge of March consumer sentiment to 84.9, its highest level in a year, while weekly jobless claims fell more than expected to 684,000. Sales of existing and new homes tumbled in February, but this was largely because of severe winter weather.

We will continue to publish relevant content as lockdown restrictions begin to ease over coming the coming weeks. Please check in again with us soon.

Stay safe.

Chloe

31/03/2021

Please see below article received from AJ Bell yesterday afternoon, which presents the advantages of investing in emerging markets. The commentary advises that there is more scope for growth in this area due to large populations having no access to banking services.  

In the developed world the banking and wider financial industry is very mature with limited avenues for rapid growth and the focus from an investment perspective is typically on the income they pay out – subject to regulators’ approval.

Financial stocks in emerging markets are, on the whole, quite different. While technology firms have increased in importance in recent years, financial stocks remain a key component of the emerging markets story with the MSCI Emerging Markets index having a 17.5% weighting to this sector.

In contrast the MSCI World developed markets index has a weighting of 13.6% to the financial sector.

According to a 2017 report from the World Bank about 1.7 billion adults globally and 58% of people in developing nations remained ‘unbanked’ – although there is considerable diversity across different geographic regions.

Capturing these customers should allow emerging market financial firms to grow more rapidly than their counterparts in the West. It explains why Prudential (PRU) has pivoted away from markets in Europe and the US to focus more on Asia.

The question of how these unbanked customers are reached is an interesting one with financial technology and mobile payments, in particular, likely to play an increasing role.

The same 2017 World Bank report commented: ‘The benefits from financial inclusion can be wide ranging. For example, studies have shown that mobile money services — which allow users to store and transfer funds through a mobile phone — can help improve people’s income earning potential and thus reduce poverty.’

Please check in again with us soon for further market analysis and news.

Stay safe.

Chloe

26/03/2021

Please see below this week’s Market Commentary from Brooks Macdonald, received late yesterday afternoon – 22/03/2021

Weekly Market Commentary | EU leaders to meet this week as concerns continue over vaccination pace

• Weekly Market Commentary
• COVID-19 updates

By Edward Park

• Bond yields remain the primary driver of risk assets as central bank meetings conclude
• Purchasing Managers’ Index (PMI) data to be released on Wednesday will highlight the relative successes between Europe and the US
• Thursday’s European summit is likely to focus on the vaccine rollout and COVID-19 cases

Bond yields remain the primary driver of risk assets as central bank meetings conclude

Bond yields continued to climb last week with the effect that the US index closed marginally down but the European market, with a greater weighting to cyclicals, eked out a small gain for the week.

Purchasing Managers’ Index (PMI) data to be released on Wednesday will highlight the relative successes between Europe and the US

With a week of major central bank meetings behind us (though Powell and Yellen are speaking to Congress on Tuesday and Wednesday), markets are likely to start taking their direction from economic data. On Wednesday, flash PMI (economic survey) data will be released from around the world. Of note will be the headline differential between the US and European PMI data. US data is expected to be helped along by imminent stimulus cheques and loosening COVID-19 restrictions. By contrast, European countries are moving the other way with their COVID-19 cases and lockdowns are being announced across the continent.

Thursday’s European summit is likely to focus on the vaccine rollout and COVID-19 cases

On Thursday, EU leaders are holding their latest European Council summit in Brussels and, more than likely, COVID-19 and the vaccine rollout will feature heavily on the agenda. Having previously been held as a beacon of European solidarity during the COVID-19 pandemic in 2020, the European Commission’s strategy of joint vaccine procurement and delivery continues to be judged by many as being too slow and bureaucratic. The shortfall of pace of immunisation among the EU member countries versus the likes of the US and UK remains stark. Risking a rise in vaccine nationalism, the European Commission President von der Leyen has refused to rule out using Article 122 of the EU treaty. Article 122 would, in theory, allow the EU to take control of the production and distribution of vaccines, potentially placing export controls on vaccines that had been destined elsewhere, such as the UK.

While ultimately our expectation is that the vaccine lag for the EU will last maybe one or two quarters at most, it risks keeping EU member countries’ economies in various degrees of more stringent lockdown. At the same time, the length of time it is taking to effect fiscal spending disbursements from the EU’s Recovery Fund, which was agreed in July 2020, is also risking a later recovery path than what is currently expected in some other countries globally.

A good update from Brooks Macdonald on recent economic data and market news.

Please continue to check back for our latest updates and blog posts.

Charlotte Ennis

23/03/2021

As we reach the anniversary of the UK’s first national lockdown, please see below article received from AJ Bell yesterday, which reflects on how different parts of the market performed during the pandemic.

It was Warren Buffett’s mentor, Benjamin Graham, who once wrote: ‘The intelligent investor is a realist who sells to optimists and buys from pessimists.’ Such plain-speaking, common sense has yet again proved its worth over the past 12 months to offer a timely lesson to us all.

It is almost a year to the day (23 March 2020) since the FTSE 100 bottomed at 4,994 amid widespread fear over what the pandemic could do to global growth and corporate profits. 

A year later and the picture is very different. Anyone brave enough to have started to take on more risk a year ago would have done remarkably well, as four data sets show. Investors now must decide whether these trends will continue, further changes in performance trends since ‘Pfizer Monday’ on 9 November will dictate or that a further shift in gear is imminent.

GLOBAL ASSET CLASSES

Fear may have dominated a year ago, but equities have been the best place to be over the past 12 months. As benchmarked by the MSCI All World index, global stocks have beaten commodities and bonds. Government bonds, in theory a port in a storm, have provided no shelter with capital losses more than offsetting any yield that they offered.

There have been subtle changes since November. Commodities have taken the lead from equities and high yield bonds have started to flag. Meanwhile, the rout still seems to be on when it comes to investment-grade corporate and government bonds.

STOCK MARKETS

Unlike bonds, where all major categories have fallen on a one-year view, all geographic equities options have gained. Asia and Japan have performed consistently well, perhaps thanks to the relatively low number of pandemic cases they have suffered and their rapid, robust approach to test, track and trace as well as containment.

America’s domination of early 2020 has faded and it is prior laggards who have come to the fore – emerging markets and even the unloved UK equity market has put on a spurt, finding itself outpaced by just Eastern Europe and the Africa/Middle East region since November. This may be down to the perception that the UK is ahead of the game when it comes to vaccination programmes, having previously struggled to contain the virus.

EQUITY SECTORS

Technology continues to grab the headlines, especially as a raft of new initial public offerings tempts investors’ wallets. But miners, industrials and consumer discretionary stocks have all beaten tech over the past 12 months and oil has been the best performer of the lot, to reaffirm the adage that the darkest hour is before the dawn. 

Meanwhile, sectors that looked reliable going into a pandemic – utilities, consumer staples and even healthcare – have lagged, a trend that has become ever-more noticeable since the Pfizer-BioNTech announcement of last autumn.

UK STOCKS

These ‘big picture’ trends – a switch from defensives to turnaround plays, from ‘growth’ (and promises of long-term secular growth, or ‘jam tomorrow’, almost regardless of the economic backdrop) to ‘value’ (cyclicals that offer growth now, or ‘jam today,’ in the event of a recovery), from pandemic winners to bounce-back candidates can be seen on a bottom-up basis in how individual UK-quoted stocks have performed

That said, it has been hard to lose money since last year’s panic. Just nine of the FTSE 350’s current membership have lost ground over the last 12 months.

These trends have become even stronger since Pfizer Monday. Beneficiaries of an economic reopening dominate the leaderboard, notably travel and leisure stocks. The laggards include online delivery plays, precious metal miners, pharmaceutical plays and previously dependable names where investors may have paid too high a valuation, and thus mistaken reliability of earnings for safety of share price. Pay the wrong valuation and nothing is safe.

CONCLUSION

No-one will time a market bottom or top perfectly and trying is a mug’s game. But the trends of the past year show how investors can calibrate risk and earn rewards over time by going against the crowd, focusing on valuation and not getting carried away.

The best approach now could be to heed the words of another investment legend, Sir John Templeton: ‘Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.’ It is perhaps time to once more research those areas of which investors are frightened and tread carefully where fear of missing out predominates.

It will be interesting to see how markets and economies react to the easing of restrictions over the next few months. Please check in again with us soon.

Stay safe.

Chloe – 22/03/2021

Please see below article received from Jupiter Asset Management yesterday afternoon, which comments on how major central banks are grappling with their reaction to rising bond yields, with the European Central Bank being the first to break ranks.

UK GDP shrank 2.9% in January, rather better than the 4.5%-5% contraction feared in the consensus estimate, bearing in mind not only the first full month of new Covid restrictions after Christmas but also the dislocation in the movement of imports and exports following Brexit on December 31st. The anecdotal ‘fast’ data, monitoring day-to-day consumer patterns (e.g., traffic congestion, credit card usage, electricity consumption etc) had suggested that Lockdown 3 would be less economically sensitive than its predecessors, and while a near 3% decline in normal circumstances would be a horror, it says much that it is a relative triumph of resilience when compared to the 20% economic decline recorded in April 2020.

Andrew Bailey, Governor of the Bank of England, still believes the economic outlook is good (the Bank’s “coiled spring”) but speaking at a symposium this week, he said that he would need to see evidence of prolonged excess inflation above 2% to require interest rates to be raised to cool any potential heat. In the meantime, he is still preparing the implementation of negative interest rates should the economy falter again. Among many mixed messages here, and despite markets’ scepticism reflected in higher bond yields (and therefore more expensive financing costs), he is effectively saying “I have all bases covered, and until anyone says otherwise, I propose to do nothing”.

The ECB, on the other hand, has broken ranks with the US Federal Reserve and the Bank of England and has responded to the challenge of rising bond yields (or more accurately, less negative yields in the case of Germany and Holland) and borrowing costs in the eurozone: it pledged to step up its QE programme with yet more incremental bond purchases on the simple premise that if demand exceeds supply, prices will rise and yields will fall. For the first time in two months eurozone yields have responded by moving in the opposite direction to their Anglo-Saxon counterparts.

The geopolitical risks of decarbonisation

As US Congress passes President Biden’s $1.9 billion Covid-recovery package, on top of the equally massive programmes implemented last year under Donald Trump’s administration, the political and fiscal spotlight is falling on the budgets of those departments which can be used to help fund such expenditure while relieving the pressure on government finances. Much the same is happening here in the UK, and in both instances defence spending is in the rifle crosshairs. As a barometer of the passion the subject excites, Bernie Sanders’ senate performance a few days ago was instructive: on full tub-thumping form, he made the social case for slashing defence dollars to “feed our people, put clothes on the backs of poor Americans”, to help realise their “expectations of, their right to, a better standard of living and higher wages!”. With Biden more understatedly making much the same case, the Chair of the Senate Budget Committee is clearly pushing on an open door among the Democrat leadership.

In the UK, Boris’s announcement in December of an additional £16 billion of spending on cyber and space defence comes at a price, largely thanks to the £17 billion ‘black hole’ in the MoD accounts. Robbing Peter to pay Paul, hence yet another Treasury-led defence review in the offing and a suggested reduction in the establishment of the Army from 82,000 to 72,000 (not quite enough soldiers to fill Old Trafford, let alone Wembley).

Why is this of relevance? Defence strategists are pointing to the opportunities and threats arising from the global decarbonisation programme. As the ice caps shrink at both poles thanks to global warming, Greenland and the Antarctic become viable for mining, being rich in the rare-earth minerals and ores increasingly in demand as the digital and decarbonisation revolutions gather pace. Not only those landmasses: it has also been suggested that mining the seabed in the deep, deep ocean, particularly in regions of high tectonic and volcanic activity where those same ores and minerals abound, is now a commercial possibility. And returning to the far north, as the pack ice retreats and becomes less enduring, so there is the possibility of year-round trans-polar maritime routes. The US, China and Russia are all sizing up the opportunities and the threats, each keeping a beady eye on the others’ movements, reading the signals of intent. Both China and Russia are investing heavily in naval capabilities (China now has the largest navy in the world, though lags well behind the US in aircraft carriers) and, while nobody is predicting a hot war, the potential for diplomatic or military stand-offs over strategic maritime assets is only likely to grow. While many treated Donald Trump’s unsubtle overtures to ‘buy’ Greenland from Denmark as a joke, in reality he was deadly serious. In the North Atlantic, Denmark becomes a key strategic player through its ownership of both Greenland and the Faeroe Islands, the latter already becoming one of the most secretive and sensitive of NATO’s watching and listening posts, keeping tabs on both the Russians and Chinese.

From an investment standpoint, while peripheral to current events and pre-occupations, however glacially and imperceptibly, these new and growing risks will be factored into longer-term risk premia.

We will continue to publish market updates and analysis, so please check in again with us soon.

Stay safe.

Chloe

18/03/2021