Although August can sometimes be a troublesome month for financial markets, this year broke from that pattern as risk assets continued their recovery from their March lows. While equities and commodities rose strongly, safe haven assets gave up some of their gains made earlier in the year. This was also true within asset classes, with the riskier areas providing the best returns, while more defensive areas trailed.
Arguably the most important event of the month was a speech made by Federal Reserve (Fed) Chairman, Jerome Powell, when he indicated clearly that the US central bank would look to take a more relaxed view on inflation moving forward. The statement implied that interest rates would remain lower for longer as part of the Fed’s plans to “reflate” the US economy.
While COVID-19 cases continued to rise world-wide, markets took some encouragement from reports of new and better treatments, progress on vaccines and an apparent reduction in death rates. However, as the month drew to a close it became clear that infection rates were rising precipitously in a few European countries (France, Spain etc.), which led to the reintroduction of some travel quarantines and local restrictions.
Most equity markets rose, with the MSCI AC World Index advancing +3.9% in Sterling terms. Japan (+5.4%) and the US (+5.2%) were the strongest performers, While Emerging Markets (+0.1%) and the UK (+1.4%) lagged. At the sector level, cyclicals tended to outperform defensives, with the standout gains seen in consumer discretionary (+9.8%), information technology (+7.0%) and industrials (+6.0%), while utilities was the weakest area, losing -3.7%. From a style perspective, investors continued to back growth (+5.6%) more strongly than value (+2.0%), while larger companies (+3.9%) slightly outpaced smaller companies (+3.4%).
In a break from the recent past, the reflation trade saw bond yields generally on the rise with yield curves steepening. As a result, longer duration higher quality bonds performed poorly, with the JP Morgan Global Government Bond Index delivering a loss of -1.1%. Although credit spreads narrowed a little, higher quality corporate bonds took their lead from broader interest rates, and the ICE Merrill Lynch Global Corporate Investment Grade also lost -0.8%. In contrast, lower quality corporate bonds fared better, with the Merrill Lynch Global High Yield gaining +1.3% (all hedged to Sterling).
The reflation trade also provided a boost to the more economically sensitive commodities. Overall, the Bloomberg Commodities Index rose +4.5%, boosted by sharp increases in agriculture (+3.3%), industrial metals (+4.7%) and crude oil (+2.9%). Among the main commodity sectors, only the safe haven of gold (-2.4%) lost ground as investor risk aversion waned through August.
While Sterling was a little firmer against most currencies, the biggest story in the foreign exchange markets was the weakness of the US Dollar, which reacted in part to Fed Chair Powell’s comments about being more tolerant on inflation moving forward. With investors also feeling a little more adventurous, the demand for the Dollar as a safe haven also faded. Over the month, the US Dollar lost -2.1% versus Sterling, -1.3% against the Euro and -2.2% relative to the Chinese Yuan.
(Notes: All monthly data is quoted in Sterling terms unless otherwise stated).
| INDEX | END JULY VALUE | END AUGUST VALUE |
| FTSE 100 | 5897.76 | 5963.57 |
| DJ Ind. Average | 26428.32 | 28430.05 |
| S&P Comp | 3271.12 | 3500.31 |
| Nasdaq 100 | 10905.88 | 12110.7 |
| Nikkei | 21710 | 23139.76 |
| £/$ | 1.3085 | 1.337 |
| €/£ | 0.90019 | 0.89284 |
| €/$ | 1.1778 | 1.1936 |
| £ Base Rate | 0.10 | 0.10 |
| Brent Crude | 43.52 | 45.28 |
| Gold | 1975.86 | 1967.8 |
This month’s values quoted as at 31/08/2020. The above values are sourced from Bloomberg and are quoted in the relevant currency.
Please sign up here to receive our investment updates, with insights into our investment approach, delivered straight to your inbox.
Clients of Nedbank Private Wealth can get in touch with their private bankers directly to understand how their portfolios are responding to market events or call +44 (0)1624 645000 and speak to our client services team.
If you would like to find out more about how we help manage clients’ investments, please also contact us on the number above. Or you can get in touch using the links to the forms towards the end of this page.
Investments can go down, as well as up, to the extent that you might get back less than the total you originally invested. Exchange rates also impact the value of your investments. Past performance is no guide to future returns. Any individual investment or security mentioned here may not be suitable, and is included for information only and is not a recommendation. You should always seek professional advice before making any investment decisions.
If you are interested in becoming a client, please complete the form via the ‘become a client’ button below. Alternatively, if you are already a client, or if you have a question about how we help clients in particular circumstances, please use the ‘contact us’ button.
We will get back to you as soon as we can during office hours, which are Monday to Friday, 8am to 8pm (UK time), except for UK public holidays.
Copyright Nedbank Limited 2022.
Thank you for your interest in Nedbank Private Wealth. Please call us on +44 (0)1624 645000 or complete the requested information and one of our team will get back to you soon. We look forward to speaking with you. Please note: If you are an EU resident, we are unfortunately unable to offer our services to you at present.
* Required fields
This is the Nedbank Private Wealth International website. You can access Nedbank Private Wealth South Africa by clicking on the link or using the toggle in the header.
This website is accessible worldwide. We cannot guarantee that the website or the information contained within it complies with, or is appropriate for use in, all jurisdictions. The purpose of this website is to provide information about Nedbank Private Wealth, our products and services, and how we aim to help our clients. Not all products and services referred to in this website are available in all jurisdictions. The information contained in the website is not intended to, and does not constitute, any offer by us to sell, nor it is intended to be an invitation or solicitation to buy, any product or service, and must not be relied on in connection with any investment or other decision. More information is available in the legal notices section of this website. This message will only be displayed once.
This website uses cookies to improve your experience on our website. We recently updated our privacy policy and our cookies policy to ensure you understand how we protect your personal information. Please note that in order to stop cookies being downloaded, you will need to change your browser settings, which we explain in our cookies policy.
