A popular rumour in the early days of the COVID-19 crisis was that the virus couldn’t survive in direct sunlight. An odd coincidence, then, that the Sunshine State is among a number of US states reporting notable increases in new cases.
More cases in Florida, as well as Texas, California, and Arizona among others, placed some downward pressure on markets last week, with the S&P 500 relatively flat throughout the week. There was increased movement into less risky assets, such as sovereign debt, leading to high demand for US Treasuries. The price of gold, a ‘safe haven’ asset, hit a nine-year high last week, reaching $1,800 per troy ounce for the first time since 2011.
However, investor sentiment remains buoyant. Even though deaths and case numbers are rising, new cases appeared to have peaked in Arizona by the end of the week, noted Pantheon Macroeconomics on Friday. There are hopes that the rate of increase in the US, while alarming, might stay lower than it was when COVID-19 first struck, due to behavioural changes and lockdown-type restrictions in some states.
The creation of a vaccine or treatment appears increasingly likely, noted Lew Sanders of Sanders Capital, recently appointed co-manager of the St. James’s Place Global Value fund. If introduced in a timely fashion, such treatments would mean that much of this year’s economic damage could be repaired in 2021, with government interventions having played a crucial supporting role in the interim.
Sanders adds that active fund management allows for opportunities in times of uncertainty: “Anxiety is the source of opportunity. It’s what actually spawns high expected returns, and settings like this produce quite a lot of it.”
The picture was decidedly more optimistic in China, where equities recorded large gains throughout the week, before falling on Friday. The Shanghai Composite rose 10% between Monday and Wednesday, and China’s currency, the renminbi, also strengthened against the dollar following data suggesting that its economy is recovering.
Sentiment was mixed in Europe, where on Tuesday the European Commission warned that the economic fallout from COVID-19 will be worse than feared. Lowering its growth forecasts for the EU this year, it now expects the bloc’s GDP to shrink by 8.3% this year, worse than its previous estimate of 7.4%. It also expects a smaller recovery in 2021.
“Lower growth forecasts due to COVID-19 should not surprise,” argues Ken Hsia from Ninety One, manager of the St. James’s Place Continental European fund, adding that positive data is beginning to emerge from Europe as lockdowns ease and government support packages kick in.
COVID-19 case numbers, discussions around the EU recovery fund, and upcoming quarterly announcements from companies, will all affect European markets in the coming weeks, he says.
He adds: “Overall we believe that Europe’s actions against COVID-19 are reasonable compared to other parts of the world. This should mean that further risk is mitigated, and COVID-19 risk should be behind us before long.”
Meanwhile, Boohoo Group came under scrutiny last week. Founded in 2006, the online group successfully targets the youth market with affordable clothing, reaching 12-month sales of over £1 billion in 2019.
But a Sunday Times investigation alleges that its supply chain included UK factories where workers earned less than the minimum wage, and where social distancing requirements were not adhered to. Cramped working conditions in the Leicester factories were linked to a spike in COVID-19 cases and a local lockdown of the city. Its share price dropped on the news (but recovered later in the week), while major retailers suspended the sale of its items.
The fallout demonstrates what can happen when companies fall foul of environmental, social and governance (ESG) concerns. Whether Boohoo Group bounces back, or whether it faces longer-term problems, the story should serve as a cautionary tale for companies and investors alike.
Finally, on Wednesday, UK Chancellor Rishi Sunak unveiled a further stimulus package designed to support jobs and boost confidence. Markets responded well to the news, although job losses announced at Boots and John Lewis the next day pointed to the dangers ahead. The coming months will force politicians, businesses and investors to start thinking about how the UK will deal with higher levels of public debt.
“The time to pay for all this will come. But not this year and not next. Our capacity to do so will depend above all on how the economy recovers,” said Paul Johnson, Director at the Institute for Fiscal Studies. He added: “Let’s hold in the back of our minds that a reckoning, in the form of higher taxes, will come eventually.”
With lockdown rules changing weekly, or even daily, it’s hard to make plans at the moment. Arranging a social gathering, a summer holiday or a family reunion can be a challenge.
Despite all the uncertainty, your retirement game plan is certainly one that you should keep in mind.
The pandemic has seen markets fall and may have led to changes in your income or expenditure. These are just some of the factors that could affect the current and future position of your retirement pot. It’s important to understand whether any action is needed to keep your retirement aspirations on track.
New research from the Institute and Faculty of Actuaries (IFoA) underlines that market volatility is not the only risk to savers1. How you contribute to, or draw from, your pension during times of uncertainty can have a big impact on your retirement income.
Of course, it’s vital that you avoid outliving your retirement savings – what’s known as ‘longevity risk.’ If your pension strategy has been on autopilot for the last few years, a review will help establish if you’re still on track to achieve or maintain your retirement goals.
If you find that your retirement plan needs tweaking to get you back on track, the IFoA recommends several tools – but above all, it’s critical to have a flexible mindset about the options available to you. For example, the Institute suggests varying the amount of contributions you make to your pension pot, adjusting your expectations about retirement income, retiring later or earlier than previously planned, or considering alternative sources of retirement income.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.
1 IFoA, June 2020
In The Picture
The high street has reopened for business, but will face many challenges in the months ahead, according to PwC.
The closure of stores back in March resulted in people doing almost all of their shopping online – a habit that is likely to stick. The convenience and safety of shopping from the comfort of your own home means fewer people are likely to return to their local high streets until the threat of the virus has passed.
While online shopping was popular before the pandemic, the virus may accelerate the decline of the high street. Small independent businesses that don’t have an online presence are likely to suffer most from this shift in behaviour; but no company is immune – Boots and John Lewis were among more high street names to announce store closures last week, as more businesses adapt their models to fit ‘the new normal’.
The Last Word
“This week’s discussions confirm that significant divergences remain between [the EU] & [the UK]. We will continue working with patience, respect & determination.”
Tweets Michel Barnier, chief negotiator for the European Union, after informal talks in London.
Sanders Capital and Ninety One are fund managers for St. James’s Place.
The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.
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