Jun 08 2020

We are starting the week with encouraging news as the UK reported 1,326 new COVID-19 cases and 77 deaths on 7th June, the lowest since mid-March.

Alongside this, general activity continues to rise, as the first chart plotting city centre footfall below shows, whilst the second chart showing ‘TV hours watched’ continues to fall from its peak as Netflix libraries are exhausted:

The Government this week presses ahead with its much-maligned two-week international arrival quarantine programme. Airlines have warned that imposing the policy will inhibit any potential recovery through the summer holiday period, with British Airways, EasyJet and Ryanair, along with 500 other travel and hospitality companies seeking to legally challenge it.

The policy’s efficacy has been questioned by many, particularly as many countries now have lower rates of infection than the UK. The UK is one of the world’s top 10 tourist destinations and attracted more than 35 million visitors last year who spent around £40 billion.

This aside, Boris Johnson is finalising plans to move the country from ‘survival’ to ‘recovery’ mode ahead of the next relaxation of lockdown rules. He is expected to announce various spending plans on roads, hospitals and research later this month, including an eye-catching £6,000 car scrappage scheme to encourage drivers to move from diesel and petrol cars to electric. Non-essential shops will open from 15th June, and pubs and restaurants will be able to serve people outside from 4th July, though pressure is mounting to bring that date forward.

Globally, Governments and central banks are also shifting to recovery mode as data bottoms out. Enormous support measures are still being announced, with the European Central Bank expanding its quantitative easing programme by a further €600 billion last week, and Japan allocating an additional $1.1 trillion of spending that will require a third extra budget to pass. Japan’s coronavirus response package so far is worth around 42% of GDP – a truly remarkable figure – that will push the gap between Government expenditure and revenue to a point far beyond anything seen in modern times.

In amidst the continued positive sentiment, we saw a third week of gains for undervalued stocks and regions, with the UK outperforming other major geographies strongly. The FTSE 250 rose by nearly 7% and the FTSE 100 BY 6.7%, ahead of European equities (5.7%) and emerging market (4.8%) and Asia equities (4.5%). Pockets of emerging market equities performed particularly strongly, with Latin American markets moving up by more than 12.5% as currency fluctuations boosted returns.

Japanese (-1.44%) and US (1.97%) equities underperformed for the week as both the Dollar and the Yen were sold. Versus the Pound, they fell by 2.9% and 4.6% respectively, having acted as safe havens earlier in the year. Precious metals and government bond prices also fell as investors saw less need for their protection in a higher potential growth environment.

Whilst the rotation of market leadership into cheaper ‘recovery’ or ‘value’ stocks seen in the last month is certainly more encouraging in gauging the strength and authenticity of the rally, we must not lose sight that uncertainty is still at extremes. Valuations of parts of the global equity markets remain near or at all-time highs despite the severity of current circumstances, and we may well see further volatility from here. As always, we would countenance caution through genuine diversity to maximise the risk reward of portfolios.

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The value of investments may fluctuate in price or value and you may get back less than the amount originally invested. Past performance is not a guide to the future. The views expressed in this publication represent those of the author and do not constitute financial advice.

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