Week ending 22nd May 2020.

World Markets at a Glance

As you can see from the accompanying table, with the exception of Hong Kong and China, global equity markets rose strongly over the week – which more than recouped the previous week’s losses and clearly highlights the benefits of taking a long-term approach to investing.  For a full explanation of why time in the market is more important than trying to time the market for long-term investment returns please see here.

This may seem bemusing given yesterday’s (21 May 2020) and today’s (22 May 2020) negative economic data and newsflow:  US job losses have now totalled 38.6m in the past 10 weeks; and the escalating war of words between the US and China over coronavirus, Taiwan and Hong Kong (please see here).

However, the media tends to overcomplicate everything, when getting back to basics is the answer.

While the week’s economic data and newsflow has given us plenty to write about in our daily updates, and while not dismissing the potential impact on Hong Kong and its residents, equity markets’ main focus is on the economic impact of the coronavirus – and so far, while US unemployment has risen dramatically, as we explained on Wednesday (20 May 2020 – please see here), there’s little evidence to date that households are facing solvency issues.  Additionally, we learnt from the global financial crisis in 2008/9 that governments and the major central banks had to return several times with larger stimulus packages before confidence started to return – and it is highly likely that Donald Trump will provide further stimulus given the US Presidential elections in November.

Furthermore, Anthony Fauci, America’s infectious disease expert said he was supportive of the US reopening its economy and expressed optimism about Moderna’s potential vaccine – and of course, a vaccine will speed up the global economic recovery.

This coming week, once again we will be keenly awaiting and analysing the weekly US jobless claims on Thursday (28 May 2020) – especially the continuing claims data, for clues if laid-off workers are being re-employed.

Other key US data releases include: the Chicago Fed national activity index; new home sales; the Fed’s Beige Book; and the Fed’s preferred inflation measure, the PCE.

Elsewhere we have Eurozone CPI; Chinese PMI; and Japanese retail sales – so be sure to keep reading our daily updates to stay on top of our thoughts and views for all these market moving events.

Investment Management Team

Tuesday 26th May 2020

Despite escalating geopolitical risks equity markets have opened higher this morning with the FTSE-100 currently up around 90 points, or 1.50%.

Donald Trump’s aggressive attitude with China, has prompted China to warn the US that it risks pushing the world’s two largest economies into a “new Cold War”.

However, as we have previously stated, Donald Trump’s hardline stance towards China resonates with American voters angry about Chinese trade and now the coronavirus outbreak – suggesting we can expect more anti-China rhetoric in the run-up to the US Presidential elections in November.

Consequently, it is better to focus on the economic recovery as more countries start to reopen their economies given the slowing coronavirus infections and deaths – for example, Japan, the world’s third largest economy, reopened yesterday, Monday 25 May 2020.

Reinforcing this view, travel and retail companies are among today’s best performing equities as these companies should benefit from the unprecedented level of global stimulus and economic reopenings.  For example, within travel and leisure, both IAG (the owner of British Airways) and easyJet are up 20%, Carnival Cruises is up 12% and Whitbread (the owner of Premier Inns) is up 14%; while in the retail sector JD Sports is up 11% and Next (held in client portfolios) is up 7%.

That does not mean we are ignoring these geopolitical risks, or the potential for a second wave of infections, but equity markets are heartless and it will need more than the current level of US/China bombastic rhetoric to curb enthusiasm surrounding the economic reopenings and potential coronavirus vaccine developments.  Having said that, we like to invest with your long-term interests in mind by focusing on risk management and capital preservation, and we currently have a marginally cautious stance with a slightly higher than normal level of cash (including liquidity funds).

Investment Management Team