Global Market Overview – October 2020

October was dominated by negative COVID-19 headlines, with a splash of US election fear added to the mix. As virus case numbers climb, and lockdowns begin again, it can be difficult to separate near-term emotions from the long-term outlook. However it is important to think about the big picture.

When we step back, we remain optimistic about a global recovery. This positive stance comes from two key points. First, the economy is in better shape than headlines would have you believe. Second, the world is, over time, winning the economic war with the virus.

The largest economies in the world are doing well. China and the US make up over 40% of the global economy, and are performing strongly.

The US is experiencing the sharpest ever recovery from a recession. Key parts of the economy – housing, manufacturing, construction – are continuing to expand. Consumer confidence is now returning. Another stimulus package is likely to add fuel to an already roaring growth story.

China has done an even more remarkable job. Not only has the virus been controlled, but the economy has returned to normal too. Factories are open, and demand is rapidly increasing in the service sector. China’s economy will actually grow in 2020 vs. 2019.

Clearly, Europe is likely to have a difficult few months ahead. However, even here, there is cause for optimism. The virus is less economically disruptive than last time. Although high-visibility areas such as tourism and hospitality will suffer again, the hidden drivers of the economy are far better placed to keep functioning.

Equity performance in the month reflected the differing economic outlooks in the regions. The UK and European markets fell most – with the FTSE 100 down 4%, and Europe down 5%, reflecting the return to lockdown. The US market fell by nearly 3%, partly due to election related uncertainty, alongside virus concerns, and some issues with the big tech businesses. China meanwhile, had a positive month – as did the rest of Asia, rising nearly 2%.

Government bonds barely rallied at all – offering very little protection for portfolios above that offered by cash.

Core views

The recovery is already happening… The world has never seen as much coordinated stimulus as in the past five months. A V-shaped economic recovery is our base-case; with some areas like China already nearly back to normal. As the recovery continues, and turns into an expansion, we want to be exposed to it.
The virus won’t derail this growth… Lockdowns are unlikely to be as severe and as widespread as previously. At the same time government support is massive and immediate. Looking at the long term and looking globally, there is more economic good news than bad news – despite how it can feel in the UK at the moment.

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.

October 2020
With thanks to Seven Investment Management LLP for their views and market thoughts.
RiverPeak Wealth Limited

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