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Viewpoint – September 2020

The pattern of market performance since the March lows continued unabated in August: global equities strong, led by the US and within that tech stocks; high yield bonds, emerging market debt and convertible bonds outperforming safe haven government bonds; inflation protected bonds performing well; precious metals strong; and the dollar weak. The S&P 500, with a 7% rise, reached new all-time highs, dragging the MSCI World index to a new high, despite many of its other constituents remaining well below previous peaks. Within markets, tech stocks and other winners from the pandemic continued to forge ahead, the NASDAQ index rising 10% to new highs, while sectors most exposed to the damages wrought by Covid, including financials, real estate and leisure, continued to suffer.

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Viewpoint – June 2020

The world economy has entered its sharpest and deepest recession since the Great Depression almost 100 years ago, yet equities are in the midst of a raging bull market. By the end of May, global equities, as measured by the MSCI World index, had returned 35% from the market bottom on 23rd March, an exact mirror of the 35% decline between the bull market peak on 19th February and the March 23rd low. The pace of both the decline and subsequent recovery, including a further gain of almost 5% in developed world equity markets in May, is without precedent.

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Viewpoint – May 2020

The recovery in markets which started in late March, following the massive interventions of the Federal Reserve in the US, and other major central banks, continued through April. This huge monetary stimulus, a combination of interest rate cuts (the only central banks not to cut have been those with rates
already at or below zero) together with asset purchases on a scale never before seen, unlimited in the case of the Fed, ECB and Bank of Japan, averted a deep and sudden shock to economic activity from triggering a systemic financial and liquidity crisis. Liquidity, funding and credit stresses eased rapidly and have largely normalised in the past month.

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Viewpoint – April 2020

Three months ago, investors were looking forward to an improved year of global growth and corporate earnings. That was then. The coronavirus crisis is an era defining event; life before coronavirus and life afterwards. Above all it is a humanitarian crisis on an epic scale, the speed of its destruction amply illustrated by its spread: on February 29th there were 85,000 confirmed cases across 58 countries, with 2,924 deaths, by 6th April there were 1.25m cases and over 69,000 deaths as the pandemic reached 207 countries.

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Viewpoint – March 2020

After a period of remission verging on complacency, markets were dramatically infected by coronavirus in the final week of February, with the sharpest weekly fall in equities since the financial crisis. The trigger was the realisation that the spread of the virus beyond China, and in particular into Europe, was not only inevitable but immediate, with Italy’s economic heartland suffering an extremely serious outbreak which is still in its early stages. Taking a line from the damage caused to China’s economy, investors began to discount a very sharp contraction in economic activity in Europe, and globally, as the virus continues its inevitable spread, now in 86 countries and rising. The impact on economies is immediate, with factories closed, supply chains interrupted, travel and leisure activities curtailed, services withdrawn and large parts of the worst affected countries, China, Italy, South Korea and Iran (and the expectation of many more to follow), in effective lockdown.

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Viewpoint – February 2020

Markets started 2020 in much the same way that they ended 2019, with investors buoyed by the expectation of ultra loose monetary policy for a long time ahead, diminished risks from trade wars and Brexit, and the prospect of a recovery from 2019’s growth slowdown as manufacturing showed signs of recovering from the slump of the past 18 months. The sharp escalation in the US-Iran feud in early January led to a surge in gold and oil prices but fears of a more widespread and deeper escalation of hostilities quickly dissipated. By mid month global equities had added 2.5% to the strong returns of 2019.

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Viewpoint – Jan 2020

As the year began, so it ended, with yet another strong month for risk assets in December, capping one of the best years for markets since the financial crisis. Equities again led the charge, but leadership for once slipped from the US to emerging markets, which returned 7.5% in the month, well ahead of the US and MSCI World with 3.0% returns. This resulted in full year returns for the US of 30.7%, MSCI World 27.7% and MSCI Emerging Markets 18.4%. The ‘risk on’ environment led to safe haven government bonds weakening while high yield and emerging market bonds produced gains of 2.0-3.0%, with annual gains of 14.3% (US high yield) and 12.6% respectively.

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Viewpoint – Dec 2019

Markets are heading into the final weeks of the year with some extraordinary gains for the year to date. November proved
to be another strong month for risk assets, led by equities and in particular the US, up 3.6% for the month, taking its return so far this year to 26.9%. The contrast with the fourth quarter of last year, when Wall Street fell 20%, could not be more stark, and reflects to a large degree the policy pivot by the Fed, followed by other central banks, from tightening to easing policy. Markets have shrugged off the sharp downturn in global trade and manufacturing, as well as a tough year for corporate profits, which have been broadly flat, and have recovered all the ground lost in that sharp setback of Q4 2018. While the US has led the way and has reached a new all-time high other equity markets have also performed well: Europe ex UK gained 2.6% in November, 25.1% this year so far, while even the laggards among developed markets, Japan and the UK, have gained 16.4% and 13.3% respectively this year, after solid returns in November. The MSCI World index, dominated as it is by the US, was up 2.8% in the month, 24.0% year to date.

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Viewpoint – Nov 2019

Risk assets made further progress in October, with equities leading the way. Wall Street gained 2.1% and reached a new all-time high, but, as in September, the best returns came outside the US: Japan was up by 5%, Asia ex Japan by 4.5% and emerging markets by 4.2%. Among the major markets only the UK was down (-2.1%) as a strong rally in sterling put pressure on the big overseas earners, which dominate the UK stock market. The improved appetite for risk was reflected in bond markets, with safe haven government bonds flat or down while credit markets produced positive returns, led by US corporate bonds up 0.6%.

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