A landmark month for global markets
Optimism over the likelihood of three vaccines, and the change in US presidency, outshone the near-term worries of rising infection rates and the reimposition of lockdowns. Global stock markets had, by some measures, their best month on record. Europe and the UK led the way with gains of around 13% in sterling terms. Shares in Asia and Japan rose by 11% and 8.5% respectively, with Japanese indices hitting a 30-year high. US indices made fresh highs, but the weakening dollar reduced a 10% rally to 7% in sterling terms.
Vaccine breakthroughs lift sentiment despite rising infections
The pandemic continued to dominate headlines and sentiment, with shares sliding on rising infection rates and the reimposition of lockdowns across many countries, but rallying on each announcement of a potential vaccine. Bifurcation in fixed interest markets reflected the more optimistic mood: high-yield and emerging market bonds gained 4%, whereas safe-haven government bonds fell by up to 1%.
With the need for fiscal rather than monetary stimulus, the United States had yet to agree a package to replace the CARES Act that ended in July. In stark contrast, the UK chancellor had been demonstrably active in being prepared to re-evaluate where assistance should be targeted and in allocating further funds. Europe, predictably, still had not been able to sign off its bailout fund, with Poland and Hungary vetoing the proposal.
Biden's victory is greeted with relief by investors
As with his predecessor, President-elect Joe Biden's victory was greeted enthusiastically by investors. This was less a comment on the man himself and more on the combination of a non-Trump victory with the likelihood of a Republican majority controlling the Senate. Early cabinet choices, including former Federal Reserve Chair Janet Yellen, added gravitas to his election.
Numbers from the UK demonstrated the limitations of short-term economic data in such an extraordinary environment: a 15.5% rise in third-quarter GDP took the country out of recession under its technical definition. The US, which annualises its data, showed third-quarter growth of 33%. Ironically, China had been the one major economy to show positive growth on the year.
A new Asian trading bloc takes shape
On the global trading front, the Regional Comprehensive Economic Partnership was completed. This free trade arrangement united South East Asia with China, Japan and South Korea, together with Australia and New Zealand. The Chinese-dominated Asian trading bloc was developing rapidly, filling a void left by President Trump's America.
A note from the desk
I am pleased to share our monthly update on market events. The overview seeks to summarise market movements together with our views and the rationale for the positioning of investments going forward. As always, should any aspect of this commentary prompt a question, we would welcome the conversation.
Martyn Charlwood · Managing Director
Markets are vulnerable to disappointment on the vaccine
Asset prices had reacted strongly to reflect the positive news on vaccines and the preferred outcome in the US elections. The extent of the rally did leave stock markets vulnerable to bad news, such as a delay in administering vaccines or, worse still, indications of lower efficacy rates. Near-term news of the pandemic's effect on the economy was likely to be poor: the week had witnessed further retailing casualties in the form of Arcadia, Debenhams and Bon Marché.
The question was whether markets would continue to look through rising unemployment, currently suppressed artificially by furlough payments, and the consequent effects on retail sales and the housing market. Further stimulus measures mattered to markets, as their announcement or omission would have a profound impact on the risk of further unemployment in travel, hospitality and retail, and the fear of unemployment in general. Central bank buying and investors' need for income were likely to continue offering support to asset prices.
Global stock markets had, by some measures, their best month on record.
Our view was that there would probably be setbacks, but that unless we saw a major upset in the vaccine rollout, we were comfortable being more fully invested. We retained cash to deploy in the lower to medium risk portfolios when the picture became clearer.
At the start of November, we reduced cash levels across the portfolios, topping up some holdings and reintroducing established strategies. We also made selective changes to our fixed income holdings.
Cash deployed into equities
We reduced cash levels across the portfolios, topping up existing holdings and reintroducing the M&G Global Dividend fund. We subsequently added the Threadneedle Latin American fund to our higher-risk portfolios.
Underweight fixed interest
We remained underweight fixed interest bonds and saw little value at close to record low yields, with 90% of global government debt yielding less than 1%.
Fixed income changes
We added the Allianz Strategic Bond fund to our lowest-risk portfolios, switching out of the M&G Optimal Income fund. This further diversified the risk of a mandate that requires a higher fixed interest weighting.
Important information
This article is a marketing communication intended for general information only. It does not constitute personal advice, a recommendation, or an offer to buy or sell any investment. If you are unsure whether an investment is suitable for your circumstances, please seek personal advice.
Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise. Capital values are at risk and not guaranteed. Forecasts and views expressed in this commentary represent our assessment at the time of writing and are subject to change.
To discuss how this commentary applies to your own portfolio, we would welcome a conversation.
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