The past six months have brought changes to the way we live, work, socialise, and communicate which at the beginning of the year would have been inconceivable. We have also sadly lost too many too soon. On top of this, there has been a global reckoning around social inequality and racism.
Against this backdrop of the continuing Covid-19 pandemic, and much economic and social upheaval around the world, global stock markets have recovered much of their losses since the low in mid-March. This is in part due to the reopening of economies as the virus has receded, first in the Pacific and Asia, and then throughout Europe. This is also due to the huge amounts of government and central bank stimulus which have buoyed markets as money has been pumped into developed economies through furlough schemes, business support, business loans, and directly to individuals.
The current Covid-19 hotspots are now in the US, Brazil and Russia. In these countries, the economies have either started to re-open or continue to remain open. The American stock market has appeared to be disconnected to the large unemployment numbers, although these have recovered more recently, and the large and increasing number of coronavirus cases. Continued support from both the Federal Reserve and the government have helped to shore up the economy and, in many states, most businesses remain open.
In the UK, Andy Haldane, Chief Economist at the Bank of England, has suggested that the UK may have a ‘V-shaped’ recovery as the lockdown is being lifted and there has been stronger than expected consumer spending. There are also still many risks for the UK economy due to potential future coronavirus outbreaks, the risk of a no-deal Brexit and the possibility of a surge in unemployment as half of the working population are either furloughed (9.3 million) or self-employed and claiming income support (2.5 million).
The eurozone overall has been able to lift lockdown measures earlier than in the UK, but the European Commission has announced a larger than expected contraction of around 8.7% this year. The estimates vary by country with Germany having a better than expected 6.3% contraction and France, Italy and Spain expected to contract over 10%. The EC estimates are based on the assumptions that social distancing measures and support from both governments and the ECB will continue.
The emerging market economies are incredibly varied. Some countries such as Brazil, India and Russia are dealing with increased coronavirus infections and struggling economically. Other countries in the Pacific and specifically China have reduced infections and are back in business. All will struggle with some reduced world demand, but China has driven a rapid recovery economically and continues to be heavily integrated into world supply chains. China is the only big economy forecast to grow this year and is expected to record the strongest rebound next year, according to IMF projections published in late June. This is reflected in recent stock market performance where stocks have jumped 15% in value in the last week.
We expect the strong returns from China to continue to drive emerging market returns.
Gold has performed incredibly well this year. The gold mining fund included in Guardian acts as a proxy for the gold market and does well during periods of uncertainty and when equity markets dip. It is also volatile and drops when the markets recover.
The property fund moves similarly but not completely in-line with the other equity markets and therefore both gold and property are included in the Guardian portfolios to add further diversification.
Volatility, although higher than it has been in the past few years, has reduced to levels last seen in February as displayed in the graph below. While there is still uncertainty, volatility will continue to remain higher than normal, but the reduction in volatility reflects the relative stabilisation of markets. Outbreaks of the virus and the potential for further lockdowns will add to volatility and potentially decrease market values while continuing scientific advances in treatment, testing and hopefully vaccines will have the opposite effect.
This review covers the period from the 1 February 2020 when Crossing Point started trading until the 1 July 2020. Our Guardian portfolios have performed well in the recent volatile markets.