05 June 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

Market strength has persisted this week, driven in part by some encouraging improvement in the most recent PMI (Purchasing Managers’ Index) data. The PMI shows economic trends by country in the manufacturing and services sectors. The rather promising data indicates that businesses are starting to look forward to more positive times ahead as lockdown measures continue to ease.

Data released by the ADP Research Institute on Wednesday showed a 2.76m loss of jobs in the USA over the last month. This might sound disastrous until compared with the median projection of ~9m jobs lost. The numbers being favourable to consensus estimates contributed to the sustained US market rally in all but the most distressed assets.

Tensions between the US and China heightened this week, leaving the Phase 1 trade deal agreed upon earlier this year, hanging by a thread. Washington and Beijing are locked in a series of disputes over a range of issues including trade, investment, security, education, the status of Hong Kong and even the origins of the Coronavirus.

The Numbers

GBP Performance to 04/06/20
1 Week
YTD
Absolute Level
Equity GBP Total Return (MSCI)

UK (MSCI UK)

2.00%

-15.40%

5521

Europe (MSCI Europe)

3.40%

-6.00%

6412

US (MSCI USA)

0.60%

2.60%

8497

Japan (MSCI Japan)

-1.60%

-0.70%

6428

Emerging Markets (MSCI Emerging)

4.70%

-5.90%

472

Fixed Income GBP Total Return

UK Government (Barclays Sterling Gilts Index)

-1.60%/p>

8.10%

315

Investment Grade Hedged (Barclays Global Aggregate Corporate Bond Index)

0.60%

1.30%

307

High Yield Bonds Hedged (Barclays Global High Yield Index)

2.20%

-5.20%

503

GBP Performance to 04/06/20
1 Week
YTD
Absolute Level
Currency Moves

GBP vs USD

2.20%

-5.00%

1.27

GBP vs EUR

-0.10%

-6.00%

1.12

GBP vs JPY

3.70%

-4.60%

139

Commodities GBP Return

Gold (in £)

-2.40%

18.90%

1348

Oil (in $)

8.70%

-33.10%

38

Source: Bloomberg, data as at 04/06/2020

The Nuance

The Noise this week paints a relatively optimistic picture of the state of the world economy. Readers should exercise caution and be wary of being lulled into a false sense of security; a one-month loss of 2.76m jobs might look rosy relative to the 9m analyst estimates, but can hardly be considered good news. It’s still a long road ahead.

When prices were very low in the depths of March, there was easy money to be made. By “easy” the Manager means that those investors spending time doing the necessary analysis could determine that markets priced in an extremely pessimistic outcome and provided a significant margin of safety. For a brief period, it seemed investors were almost unable to believe that the world would ever look the same again. Amidst such panic and pessimism, it was relatively easy to find bargains.

In the last few weeks, investors have flooded into defensive stocks and more recently into cyclical assets too. Consequently, these asset prices now reflect a more optimistic outcome. Investors, at this stage, need to be correct about the speed of recovery in the economy and in corporate earnings to make investments successful as higher prices have eroded the margin of safety.

Against a backdrop of increasing optimism and confidence that we can adapt to life with this virus, the Manager continues to take a measured approach, encouraged by the positive steps taken, but expecting one step back for every two steps forward. Its portfolios continue to consist of extremely high-quality assets which provide valuable products and services, and the ability to grow long-term wealth.

Quote of the week

“They were still intact and we don’t think there is any risk of contamination or spread.”

Dheeraj Raj, Superintendent of the Meerut Medical College.

A gang of monkeys escaped a lab in Delhi with Covid-19 test samples after attacking a lab assistant. It’s rare that the quote of the week comes straight out with the full story, but in this case there’s just so much to enjoy that it seemed like a missed opportunity not to try to cram it all into one sentence. The bizarre incident saw the troop of primates launch their attack near Meerut Medical College in Delhi, India. One of the monkeys was later spotted in a tree chewing one of the sample collection tests. The undamaged kits were later recovered and were found intact.

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.

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