Coronavirus (COVID-19) Update – 26th June 2020

There has been little of note to distinguish the past fortnight from previous ones.  There has been some good news on the health front with reports that a commonly used and widely available drug called Dexamethasone had proved to be successful in limiting the likelihood of the patient dying in severe cases of Covid-19. This is, of course, to be welcomed but unlike a vaccine it does not limit the spread of the disease and so does not help policy makers with their decision in how quickly to reopen their economies. Nevertheless, lockdowns are continuing to be loosened across the world and whilst there have been renewed local outbreaks in countries such as Germany which have succeeded in bringing down their total number of infections, thus far, these have proved to be containable.

After quite an aggressive sell-off towards the end of the second week of June (a fall of over 6% in just two days) as we were writing our last update, the equity markets edged up gradually over the next week or so, only to slide 3%, in the case of the FTSE All-Share in the middle of this week, before stabilising somewhat, leaving the return for the past two weeks hovering above 1%.  (Source: FE Analytics, GBP, Total Return to 25th June 2020)

This reflects the “push me, pull you” nature of investor sentiment which is on the one hand buoyed by optimism from the resumption of economic activity and continued government support and on the other weighed down by ongoing fears about the virus itself and the presumption in some quarters that a second wave is inevitable, if not now, then when the weather turns colder.

Broadly speaking, markets continue “to climb a wall of worry” although there are plenty of commentators who have expressed concern that investors are putting far too much confidence into an economic recovery that is not going to be as emphatic or as swift as the rise in share prices is implying.

Meanwhile, I would like to share a handful of charts that stood out this week, brought to my attention by JP Morgan and John Authers at Bloomberg.

These first two show the latest data on the spread of the virus.  China, South Korea and a number of European countries have proved to be successful in controlling infections but the persistently high level of cases in the US stands out as does the rise in India, Brazil and Sweden, the latter alone amongst European nations for not enforcing a strict lockdown.  Given the importance of the US to the global economy this is a cause for concern and does seem somewhat at odds with the strength of the US stock market in particular, although as we have mentioned on numerous occasions before the presence of a number of technological behemoths in the S&P 500 is certainly a significant factor in that market’s dominance.

More encouragingly, the following chart shows how there are signs of a true V-shaped recovery in China with macroeconomic data such as retail sales and fixed asset investment recovering to pre-Covid levels. 

It is perhaps not surprising to note that the Chinese market as represented by the MSCI China Total Return index has provided a healthy return of 11.88% to sterling-based investors.

Whether or not the economies of the West, which are more dependent on services rather than manufacturing, will be able to follow suit remains to be seen.

We hope that all our clients stay safe and well. Please do get in touch if there is anything you would like to discuss further.

12th June 2020 RiverPeak Wealth Limited

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