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Weekly investment update

James Robertson reviews the impact of the news on financial markets for the week of 28 September, which saw riskier assets broadly outperform safe havens.
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Published 6 October
6 mins

The news that probably moved markets the most during the week of 28 September was the announcement that President Trump and his wife had tested positive for COVID-191. Financial markets initially fell quite sharply, but recovered after it was reported Trump was only displaying mild symptoms and that Joe Biden had tested negative.

As a result of this, and other news, the week saw riskier assets broadly performing better than their safe haven peers, with equities and corporate bonds outperforming government bonds.

In Europe, the reports of a second wave of the pandemic flagged Italy recording its highest daily number of COVID-19 cases since the end of April2, although this is in part due to a higher volume of testing, and France is set to reimpose tighter restrictions. The French Minister for Solidarity and Health, Olivier Véran, stated that his government “may have no choice” but to close Parisian bars and restaurants again, with its capital on “maximum alert”. UK government sources1, meanwhile, noted that London may be at a “tipping point” for a new lockdown, and further restrictions were announced for parts of northern England.

In more positive news, the US government announced it will be sending 150 million rapid-result tests3 to state authorities. The single-use tests were shown to be the size of credit cards and give results in 15 minutes. The use of an easy, quick and reliable test could be the bridge to getting life back towards some normality prior to the rollout of any vaccine.

Also in politics, the presidential debate on 29 September provided very little new information. Any further debates, however, will see additional measures taken to ensure a more orderly discussion, according to the Commission on Presidential Debates3, so as to prevent Trump’s constant interruptions.

In other news in the US, the main economic update was September’s US jobs data, with the last weekly report seeing 139,000 fewer US jobs created than had been expected4. Although the unemployment rate fell for a fifth consecutive month to 7.9%, and the recent increase in jobs means the US has now recovered more than half of the jobs lost since February4, concerns remain. This was underscored by the latest purchasing managers’ index5 that indicated that the US service sector expanded in September, but at a slower pace than in August.

As such, the Federal Reserve (Fed) also remains concerned. The Dallas Fed President, Robert Kaplan, indicated that he did not expect the US economy to get back on track from the pandemic until late-2022, or even 2023, with the New York Fed President, John Williams, seeing a similar three-year time frame for a full recovery. Williams also called for further government spending, saying that the recovery needed “all the official support it can get”. While the talk of some progress regarding a fiscal stimulus package was forthcoming last week1, which helped US equities, most expect an actual deal will only come through after the November elections.

In the UK, the Bank of England’s Deputy Governor, Dave Ramsden1, spoke of negative interest rates, stating that while operationally possible, the bank was not about to use them imminently. In further news, as per the US, the UK’s service sector expanded in September at a slower pace than in August, as shown by the latest purchasing managers’ index5.

On the Brexit front, there were reports that EU negotiators were preparing the legal text for a trade agreement with the UK3. Then, on Thursday 1 October, the European Commission announced it was beginning legal proceedings against the UK on the grounds that parts of the UK’s Internal Market Bill violate the Withdrawal Agreement. This too was superseded at the weekend due to a joint statement from UK Prime Minister, Boris Johnson, and the European Commission President, Ursula von der Leyen, who both urged their chief negotiators to work intensively to try to bridge the significant gaps remaining3.

Elsewhere in the EU, the low level of inflation and low interest rates prompted European Central Bank (ECB) President, Christine Lagarde, to suggest that the central bank could be about to adjust its ‘below, but close to 2% inflation target’ to an average inflation target, in a move similar to that of the Fed1. Her comments came as German inflation fell to a five-year low of -0.4% in September, adding to the Eurozone’s existing concerns about weak inflation. Low inflation could push the value of the Euro higher, which could mean even lower inflation since a stronger single currency makes imported goods cheaper.

The main data highlight for this week came yesterday as the services purchasing managers’ indexes from around the world were released on Monday 5 October5. These showed a mixed picture in the Eurozone, with Germany outperforming the rest of Europe and the only economy to register any growth in services over the month.

Last, but not least, China’s official September purchasing managers’ indexes5 beat consensus expectations. This helped to reaffirm the message that the country’s recovery remains on track on the back of stronger exports.

In markets, the MSCI AC World was down -0.1% in Sterling terms, as the value of the Pound edged higher towards the end of the week on hopes that a meeting between the heads of the EU and UK government could progress Brexit negotiations. In US Dollar terms, the MSCI AC World was up +1.7%.

In markets, the MSCI AC World was down -0.1% in Sterling terms, as the value of the Pound edged higher towards the end of the week on hopes that a meeting between the heads of the EU and UK government could progress Brexit negotiations. In US Dollar terms, the MSCI AC World was up +1.7%.

Style wise, there was no great difference between growth (-0.14%) and value (-0.07%), although smaller companies (+1.59%) – which tend to be more volatile and riskier – outperformed larger companies (-0.28%).

Finally, in terms of sectors, the standout was real estate (+2.00%), while energy (-4.27%) was the worst performing sector.

What’s happening in portfolios?

The market performance was broadly supportive of our portfolios due to our bias towards the non-US markets, and cheap Asian and Emerging Market stocks. Sector-wise, the real estate outperformance helped our position in Nedgroup Global Property, while our underweight in oil companies helped stem the negative impact of the underperformance of energy.

On the fixed income side, increasing bond yields were supportive. It is worth remembering that our short duration strategy protects against capital loss when bond yields rise and, as such, what has been a key detractor in performance over recent months has moved to our favour so far this month. The increase in risk appetite also helped our strategies holding corporate bonds.

In line with Nedgroup Global Property, the BMO Commercial Property Trust also provided positive news. Meanwhile, the two care home funds (Target and Impact) gave up a little ground, probably due to the rise in UK COVID-19 infections.

Meanwhile, most of the other alternatives also posted positive performance. The closure of Greencoat UK’s capital raise should also remove the effect that the low offer price had on the whole sector for much of September.

Last, but not least, the KKV Secured Loan Fund’s orderly wind-up remains on track, while there may also be an emerging option for a bid to come through to buy-up our C-share holdings. We have mentioned the appointment of Brett Miller in a previous update [link], but it was his work that helped Hadrian’s Wall shareholders receive a bid at significantly more than could be achieved via the markets. While it is worth noting that the holdings only represent 0.8% of the portfolios, we are comfortable that we have taken the right decision for clients to hold on and wait for the KKV board to pursue the most profitable outcome.

Events this week

US politics remain in focus with updates on Trump’s health due and the first vice-presidential debate in the US between Mike Pence (R) and Kamala Harris (D) in Salt Lake City on Wednesday 7 October1.

Brexit talks also remain front and centre stage with discussions now entering a critical phase due to the rapidly decreasing timeline.

The Fed’s Chair, Jay Powell, is speaking on Tuesday 6 October, while the release of its latest minutes is due on Wednesday 7 October. And the ECB’s President Lagarde is speaking on Wednesday 7 October, with the central bank set to release its next monetary policy account on Thursday 8 October.

Clients of Nedbank Private Wealth can get in touch with their private banker directly to understand how their portfolios are responding to market events, or call +44 (0)1624 645000 to speak to our client services team.

 

If you would like to find out more about how we manage clients’ investments, please contact us on the same number as above. Or you can get in touch using the links to the forms towards the end of this page.

Sources: Nedbank Private Wealth and (1) Reuters; (2) John Hopkins University; (3) Bloomberg; (4) US Department of Labor; and (5) Markit Research.

 

The value of investments can fall, as well as rise, and you might not get back the original amount invested. Exchange rate changes affect the value of investments. Past performance is not necessarily a guide to future returns. Any individual investment or security mentioned may be included in clients’ portfolios and is referenced for illustrative purposes only, not as a recommendation, not least as it may not be suitable. You should always seek professional advice before making any investment decisions.

about the author

James Robertson

James Robertson

Based in our Isle of Man office, James is responsible for delivering the end-to-end investment management process, overseeing the implementation of the Nedbank Private Wealth house view within our discretionary managed portfolios, and for developing our investment proposition.

 

He has over 18 years’ investment experience and has been responsible for the Nedbank Private Wealth managed discretionary portfolios since 2007. James holds the Certificate in Investment Performance Measurement from the CFA Institute.

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