Global Market Overview – June 2020

In June we saw the government in England relax restrictions by allowing shops to re-open and the easing of the 2-metre rule. This is a key development for the economy as it allows businesses to start plotting a path back to normal. Of course, different policy speeds in Wales, Northern Ireland and Scotland muddy the picture somewhat for the entire UK, but almost everywhere the trajectory is still positive.

In the rest of the world, things are also moving at different speeds. Asia is busy dealing with isolated second waves, while Europe is starting to cautiously open. In the US, different states are seeing very diverse outcomes. Texas, Florida and Arizona had a very loose lockdown and are now seeing cases spike, while New York and New Jersey’s draconian policies seem to have kept the virus contained. It’s an important reminder that this isn’t over yet.

Equities were mildly positive in June, although with slightly higher volatility following the Federal Reserve’s more cautious tone. The S&P 500 and the FTSE 100 rose around 2%. European stocks rallied nearly 4%, but it was emerging market equities showing the strongest performance, rising over 7% during the month.

The rebound in equities over the last couple of months has been strong and we’re encouraged to see continued progression towards normality for many economies. The re-opening of stores initially saw eager shoppers queuing around street corners – but that consumer enthusiasm needs to persist if the economy is to bounce strongly.

Healthcare had a more challenging period with the sector down c.4.5% over the month. Our view to trim back this allocation in March has therefore been rewarded. We still believe signs point to long-term outperformance of the healthcare sector with aging populations relying on more healthcare products and services – so we may look to add on further weakness.

Core views

Coronavirus – the Hammer and the Dance. The Hammer stage of tackling COVID-19 (mass lockdowns) across the world’s economies is coming to a close. The next stage is the Dance, as governments ease the rules, get some people to work and shift economies back towards normal. This will take many months.

The economic recession and recovery could set records for speed and size. The world has never seen as much coordinated stimulus than in the past three months. There will still be economic casualties and job losses, but the scale of government support should limit the pain compared to 2008.

Equities and credit – bargains for the brave. While risky assets have calmed down, investors should still expect surprises over the next few months. We think that corporate bonds are attractive, because investors are so scared of defaults. Given that much government support is targeting these companies directly, we’re optimistic about their repayment prospects.

We now know how far bonds can go – not much more. Low interest rates aren’t new. But most developed markets have just increased their borrowing by a staggering amount. Eventually, markets will begin to price in a rise in inflation – and government bonds will come under pressure.

Summary
Investors should try to focus on the fact that investing in the stock market over the long term, is a powerful tool to preserve the purchasing power of their wealth and on ensuring that they have an appropriate asset allocation for the level of risk with which they feel comfortable. A disciplined approach to asset allocation and identifying good active managers who can navigate these conditions successfully remains of the utmost importance.

June 2020

With thanks to Seven Investment Management LLP for their views and market thoughts.
RiverPeak Wealth Limited

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