03 July 2020
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Welcome to our weekly newsletter, where the Manager summarises the key market developments over the last seven days.

The Noise

The UK Government confirmed a local lockdown in Leicester on Monday, marking the first such lockdown in the UK in the wake of rising cases in the area. The lockdown comes amidst rising cases in a number of US states including California, where the number of cases has risen by nearly 50% in the last two weeks. Both of these examples represent the second wave fears governments have tried to avoid as they reopen economies.

This week, China introduced a new national security law for Hong Kong. It introduces new crimes with severe penalties and allows mainland security personnel to legally operate in Hong Kong with impunity. Trials can be held in secret and without a jury; judges can be handpicked by Hong Kong’s chief executive who is answerable directly to Beijing. Arrests were made on Wednesday under a new anti-protest law.

The stock market continues to push higher, fuelled by perennial hopes of a vaccine and supported by the coordinated efforts of governments and Central Banks. Corporate news flow is due to pick up in the next few weeks, giving investors some deeper insight into exactly how individual businesses have performed over the last few weeks.

The Numbers

GBP Performance to 02/07/20
1 Week
YTD
Absolute Level
Equity GBP Total Return (MSCI)

UK (MSCI UK)

1.70%

-16.60%

5382

Europe (MSCI Europe)

2.10%

-5.20%

6396

US (MSCI USA)

1.30%

4.90%

8590

Japan (MSCI Japan)

-1.60%

-1.60%

6299

Emerging Markets (MSCI Emerging)

1.80%

-1.10%

490

Fixed Income GBP Total Return

UK Government (Barclays Sterling Gilts Index)

-0.60%

9.50%

320

Investment Grade Hedged (Barclays Global Aggregate Corporate Bond Index)

0.60%

3.20%

313

High Yield Bonds Hedged (Barclays Global High Yield Index)

0.30%

-4.70%

505

GBP Performance to 02/07/20
1 Week
YTD
Absolute Level
Currency Moves

GBP vs USD

0.40%

-6.00%

1.25

GBP vs EUR

0.20%

-6.20%

1.11

GBP vs JPY

0.70%

-7.00%

134

Commodities GBP Return

Gold (in £)

0.30%

24.40%

1423

Oil (in $)

4.60%

-25.80%

40

Source: Bloomberg, data as at 02/07/2020

The Nuance

With equity markets having recovered strongly from the panicked lows of March, valuations have climbed well out of the troughs and have spent the last few weeks pushing progressively upwards.

Against a backdrop of low (in some cases negative) yielding government bonds forcing investors to look elsewhere for returns, equity markets continue to be pumped with capital. We are now in a position where forward-looking returns are likely to be modest given current valuation levels and, so, careful attention needs to be paid to company fundamentals.

The rising tide of the last few weeks has lifted most boats. Now that the swell is subsiding, it’s increasingly important to pick the stocks which can continue to rise of their own accord, even on still waters.

Earnings season is fast approaching with companies preparing to update markets on recent performance. It’s very possible that many will report results which do not quite match the optimistically V-shaped stock market recovery.

As news starts to emerge, the Manager will continue to conduct the diligent analysis necessary to look for those companies which have, and can continue to, benefit from the gradual recovery economies are experiencing.

Source: Sanlam Private Wealth

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Sanlam Private Wealth is a trading name of Sanlam Private Investments (UK) Ltd.

Past performance is not a reliable indicator of future returns, investing involves risk and the value of investments, and the income from them, may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.

The information and opinion contained in this market view should not be treated as a forecast, research or advice to buy or sell any particular investment or to adopt any investment strategy. Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness by Sanlam. Any expressions of opinion are subject to change without notice.

Disclaimer: VAM Cautious, Balanced and Growth Funds are compartments of VAM Managed Funds (Lux).
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