The pandemic continued to dominate discourse in April as case numbers globally reached record daily levels, but the impact became increasingly differentiated between the developed world, where the vaccine roll-out is bringing herd immunity and the end of lockdowns and movement restrictions into sight, and developing nations, notably India and Brazil, where second waves have spread rapidly with devastating effect and vaccine roll-out is trailing badly. However, the global dominance in both GDP and stock market capitalisation of the developed world together with China, which was the earliest economy to rebound from the pandemic, has underpinned growing confidence in recovery and the prospects for equity markets. The US and global equity market indices reached new all-time highs in April, with the S&P 500 up 5.3% and MSCI World +4.7%. Emerging markets were more constrained by the pandemic news, and by further evidence of China’s widening clampdown on its internet giants as both Tencent and Meituan were hit with anti-trust investigations following a similar move on Alibaba. The MSCI Emerging Markets index returned 2.5% in the month, with China +1.4%.
Imperium Capital Publication
Viewpoint – March 2021
While the vaccine news in early November was arguably the critical turning point in this cycle, providing light at the end of the pandemic tunnel, it was only in the first quarter of 2021, 12 months from the pandemic’s onset, that investors began to price in the recovery ahead and a return to post-pandemic normality. The recovery and reflation trade took hold, manifest most clearly in sharp falls in bond markets, suffering one of their worst quarterly returns in decades, and in a big rotation in equity markets, from the pandemic winners, in e-commerce, the digital and online world, to those sectors which have suffered most from lockdowns and restricted mobility. Over the quarter, global equities returned 4.9%, but within that, the sectors most sensitive to economic recovery produced substantial returns, including energy +22% and banks +19%, while those which had benefitted from the pandemic, such as IT, healthcare and consumer staples, were flat.
Global Matters Weekly – 12 April 2021
SPACtacular surge
by Christopher Butcher
During a period of extreme volatility and a global pandemic, the initial public offering (IPO) market had a spectacular year in 2020 in terms of the number of new listings and proceeds raised, along with the rise in popularity for Special Purpose Acquisition Companies (SPACs) which have become one of the hottest investment trends on Wall Street.
Pandemic aside, 2020 has been referred to as the ‘Year of the SPAC’ in the US as the number that floated on the stock market reached an all-time high, with over $80bn raised across more than 240 SPAC listings1 . This accounted for nearly half of all listings on the US market, a significant increase compared to 2019. The momentum has certainly carried over into the start of 2021. Supportive monetary and fiscal stimulus, ultra-low interest rates and global markets at record levels have helped the US IPO market produce its busiest quarter in over two decades as issuers rush to sell while investor demand is hot and valuations high. The SPAC trend also continued, with 296 SPACs going public in the first three months of the year, already raising more capital than in the full year of 2020.
Market Snapshot
- Global equities rose 2.4% last week
- The IMF’s latest global economic growth outlook for 2021 was upgraded to 6.0% against 5.5% forecast in January
- Brent crude fell -2.9% last week to $63.0 a barrel
- Gold rose 0.9% to $1743.9 per ounce
Global Matters Weekly – 29 March 2021
Fund Selection 101
by Tom Delic
The CEO of a business has many responsibilities, two of the most important being the strategic and operational oversight of the company. Another vitally important aspect of their role is capital allocation, an area that is often underappreciated by an investor but also poorly carried out by many CEOs. When researching a fund, it is often useful to view the fund manager as a CEO of a conglomerate, responsible for making investments in a portfolio of businesses, with none of the strategic and operational pressures, thereby making capital allocation of primary focus. Viewed through this lens, making an investment through a fund is a partnership with the fund manager, who you are entrusting to manage the capital of your clients in the best possible way. Just like the listed equity markets represent a huge variety of businesses that you can choose to own a piece of, a universe of funds represents a list of potential long-term business partnerships. Below is a summary of a growing body of studies that can help form a filter for the universe when picking who you should partner with.
Market Snapshot
- Global equities rose 0.7% last week
- The global coronavirus case count continues to rise steadily, with European Commission President von der Leyen announcing that “we’re at the start of the third wave of the pandemic”
- Brent crude rose 0.1% last week to $64.6 a barrel
- Gold fell -0.7% to $1732.5 per ounce
Global Matters Weekly – 22 March 2021
Bailey, Powell and Lagarde; the new eco-warriors?
by Robert White, CFA
For all the column inches dedicated to central bank meetings this month, one potentially seismic change to monetary policy has slipped under the radar over the last few weeks. In the most recent UK budget, chancellor Rishi Sunak announced that the Bank of England should reflect the “importance of environmental sustainability”1 in policy decisions, which includes asset purchases. The prospect of central banks determining which assets to support based on environmental credentials points to a significant increase in the importance of environmental, social and governance (ESG) factors for investors, and also raises questions about the appropriate role of central banks going forward.
Market Snapshot
- Global equities fell -0.4% last week
- Government bond yields continued to rise around the world
- Brent crude fell -6.8% to $64.5 a barrel as demand flags in key markets
- Gold rose by 1% to 1745.2 per ounce.
Viewpoint – February 2021
One year ago coronavirus began to ravage the global economy and stock markets. The ensuing recession was the worst since the Great Depression, yet over those 12 months global equities have returned almost 30%, despite a 35% decline in the initial few weeks of the pandemic. Emergency policy support on an unprecedented scale underpinned markets, more recently turbo-charged by the extraordinary success of the vaccine development and roll-out programme. The narrative has moved to the scale of the economic recovery ahead and its implications for inflation: the reflation trade has been gathering pace and came to dominate markets in February.
Global Matters Weekly – 15 March 2021
Why we are all hard wired to be bad investors
by Gary Moglione
Investing our savings is an extremely important part of life that will have a strong influence on retirement, home ownership and the quality of our lifestyle. Therefore, you would expect us to have evolved to be efficient investors. Unfortunately, we are hard wired to be bad investors as many of our natural instincts force us to fall into a number of behavioural traps that result in poor investment returns. The first one is herd mentality. This becomes more prevalent at points in the cycle when retail investors are highly active as investment tips get passed on in workplaces, pubs and dinner parties. Everybody has heard stories of people getting rich investing in Bitcoin or technology stocks that has made them motivated to get involved. A small number of high-profile stocks have posted stellar returns in recent years. As a result, valuations have been pushed up ever higher. Higher valuations should spark caution when investing but the reverse actually takes place. People talk about their gains to friends and family sparking more interest in a stock. This causes the share price to rise even further detaching it from intrinsic value. We have witnessed this many times before with the ‘nifty fifty’ period in the late 1970’s and the tech boom in the late 90’s. Dare I say we are in a similar environment at the moment.
Market Snapshot
- Global equities rose 2.9% last week
- OECD revises up 2021 global growth forecast to 5.6%, an increase of 1.4 percentage points from the OECD’s December forecast
- Brent crude fell -0.2% last week to $69.2 a barrel
- Gold rose 1.6% to $1727.1 per ounce.
Global Matters Weekly – 8 March 2021
Percy’s not a pig
by Alex Harvey, CFA
A little over a fortnight ago history was repeated when NASA’s Jet Propulsion Laboratory (JPL) successfully landed a rover on the Martian surface. After a near seven-month journey across 300 million miles of space, at a gentle cruising speed of nearly 25,000mph, the rover touched down on 18th February. Perseverance – or Percy for short – was lowered on to the surface by a sky crane, like its cousin Curiosity in 2012, in a feat of incredible human engineering. Of the now five successful JPL rover landings (yes, five!), this was the most accurate ever and was enabled through the experience gleaned over previous rover missions. [If you want to see the landing in real time from the onboard cameras see the link in the footnote1 . It is remarkable to watch and with probably better resolution than my phone].
Market Snapshot
- Global equities ended the week relatively flat, returning +0.1%.
- The US Senate has passed President Biden’s $1.9 trillion Coronavirus stimulus package.
- Brent crude rose by +4.9% to $69.4 a barrel.
- Gold fell -1.9% to $1700.6 per ounce.
Global Matters Weekly – 1 March 2021
Are you sitting comfortably?
by Richard Parfect
As I write this there is a good news story of a B777 executing a successful diversion and emergency landing following the dramatic loss of one of its two engines. Somewhat unnervingly for passengers the remnants of the burning engine were clear to see. More seriously there was fuselage damage too, however the pilots’ frequent rehearsed emergency procedures and risk controls prevented a catastrophic outcome. Passenger unease is understandably common on aircraft, particularly if the aircraft enters clear air turbulence. Whilst even significant buffeting is normally well within design limits of the aircraft, passengers can become alarmed that something catastrophic will befall them. However, the best thing passengers can do is sit back, try and relax and trust in the professionalism of the pilots and engineers; the turbulence will pass.
Market Snapshot
- Global equities fell -2.8% last week
- 10-year US Treasury yields rose 14.4bps on Thursday in their biggest daily move since March 2020, before falling -11.5bps on Friday. The substantial moves were driven by real rates increasing, rather than higher inflation expectations
- Brent crude rose 5.1% last week to $66.1 a barrel
- Gold fell -2.8% to $1734.0 per ounce.
Global Matters Weekly – 22 February 2021
Coin toss
by Andrew Hardy, CFA
Digital gold or “index for money laundering1 ”? Fiat currency hedge or irrational mania? Bitcoin divides opinion more than most, but the bulls are in the ascendency at present and the 12-year old cryptocurrency is gathering many new followers as a result. Its 6-fold increase in price in the last year has been the driver; creating a FOMO (fear of missing out) effect whilst also increasing the size of its market, which reached $1 trillion over the weekend, to a level where institutions begin to consider it more seriously. While we expect that cryptocurrencies will become more mainstream over the coming years, we’ve never held Bitcoin in portfolios, nor do we have any plans to include it. I’ll provide a few thoughts around this here.
Market Snapshot
- Global equities returned -0.4% last week whilst global bond yields rise.
- The Pfizer-BioNtech vaccine is reported to be 89.4% effective in preventing Covid-19 infections according to an Israeli study.
- Brent crude oil rose 0.8% to $62.9 a barrel.
- Gold fell -2.2% to $1784.3 per ounce.