WeeklyWatch – What the virtual Economic Policy Symposium means for global investors

03 September 2020

Stock Take

Global stocks hit a record high last week, leaving their previous losses from the year in the dust. The FTSE All-World index even struck its highest-ever level, clocking the best August for global stocks in decades.

That said, as we’ve talked about in previous issues of WeeklyWatch, it’s important to note that the recovery in share prices isn’t evenly spread. Even so, the recovery is largely due to the financial support being pumped into global economies by governments and central banks.

From Wyoming to webcams

Due to this, all eyes were unsurprisingly on the Fed’s annual Economic Policy Symposium last week. This conference of central banks is usually held among the mountains of Jackson Hole in Wyoming, but this year it was held online. The headline news came from the US central bank, the Federal Reserve, which said it’ll be more flexible with managing inflation. Essentially this means that it won’t rush to increase interest rates if inflation rises above its current target.

Commentators took the news quite well – low interest rates are one of the reasons why stock markets have performed well in recent years. The news is “marginally positive” for investors in risk assets (such as equities, high-yield bonds and property), noted Mark Holman from TwentyFour Asset Management, Co-manager of the St. James’s Place Diversified Bond fund.

Positive news for the US-China trade deal

Meanwhile, early last week, officials from the US and China reaffirmed their commitment to the first phase of their trade deal. The deal is a rare piece of cooperation between the two countries, whose relationship has deteriorated recently, with tensions over issues like data security, intellectual property, Hong Kong, Taiwan and human rights.

The risks presented by these tensions are not news to investors. However, the hope is that the deep ties between the two countries might keep the disputes in check. Michael Collins from Magellan, Managers of the St. James’s Place Global Growth and International Equity funds, commented:

“The China-US tussle is more a mercantilist power struggle between economically interwoven and flexible countries that have different political systems and values. Such scuffles typically find an equilibrium where rivals co-exist, or even cooperate.”

Still, the relationship between the world’s two largest economies is an issue that’s not going away, and will be keeping investors occupied long after the world has recovered from COVID-19.

A sudden resignation in Japan

Japan is looking to find a leader that will lead them out of the pandemic, after the country’s longest-serving Prime Minister, Shinzo Abe, announced that he’ll soon stand down from the role for health reasons. Japan’s ruling party is likely to replace him with someone who will continue the emergency measures needed to support the economy during the COVID-19 pandemic, says Yoshi Ito of Nippon Value Investors, Manager of the St. James’s Place Japan fund. He continues:

“As Abe’s resignation occurred suddenly amid the COVID-19 pandemic, when…economic stimulus measures are in urgent need, it is highly likely that LDP [the ruling party] would choose as a successor someone who would continue the policies of the Abe administration.”

Dividends return

Research released last week highlighted another challenge that’s faced investors in recent months: dividend payments.

Janus Henderson Investors found that global payouts to shareholders declined more than a fifth in the second quarter of the year, falling to $382 billion. That’s because lots of payments from companies to their shareholders have been cut or delayed since COVID-19 began.

This has been a challenge for investors, because dividend payments have contributed significantly to the total return from equities.

However, as the world recovers from the pandemic and conditions begin to return to normal, investors are likely to see these payments begin to return, argues George Luckraft from AXA Investment Managers, which manages the St. James’s Place Allshare Income Unit Trust. He commented:

“As economic conditions improve, companies that have weathered the storm well are beginning to resume dividend payments, including paying some that were deferred earlier in the year. This trend should continue in the absence of renewed national shutdowns as companies get comfortable with the new norm.”

Commuters reluctant to return to offices

But even if dividends go back to normal, many other things won’t. One such example is the traditional office. Last week a political row gripped the UK, as the government urged people to return to their workplaces.

On one side of the argument are businesses that rely on urban footfall – last week employers’ organisation the CBI warned that city centres will become “ghost towns” if people aren’t encouraged to return. On the other side of the coin, it’s clear that not everyone is keen to leave the safety of their home offices. A YouGov poll found that almost half (47%) of the 2,600 respondents disagree with a return to work.

In other words, people who don’t tend to work in offices are in favour of a return – but the millions of commuters who’ve been granted a few months of respite are yet to be convinced!

Wealth Check

Their first experience of a pub might not be what they expected, but there’s some good news for teenagers turning 18 this autumn, as they’ll be able to withdraw money from their Child Trust Funds (CTFs) for the first time.

Children born in September 2002 onwards were given vouchers by the government to invest for the future, with the money only accessible at the age of 18. The scheme was designed to encourage long-term saving, but was replaced by the more flexible and popular Junior ISA in 2011.

Over the next year, accounts worth over £700 million are due to mature.¹ One potential snag is that as many as one in four CTFs could be lost, where families have forgotten they exist or lost track of where they’re invested.²

Young savers can withdraw all the money and either spend it or put it into a normal savings account. But a further option introduced earlier this year means the money can be transferred directly into an ISA on maturity, preserving the tax benefits and also leaving the saver’s standard annual ISA allowance unaffected.

Many parents will hope that their children will be encouraged to stick to the savings habit. And for younger savers, parents may want to consider whether to take advantage of rules introduced in 2015, which mean that they don’t have to wait until the child’s 18th birthday to transfer the funds into an ISA wrapper.

Andrew Shaw, Head of Investment Communications at St. James’s Place, commented:

“For the youngest holders, there are still nine years before their CTF reaches maturity. It’s therefore worth considering whether that time would be better spent invested in a Junior ISA.”

¹ HMRC, January 2020
² OneFamily, January 2020

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.

An investment in equities (funds) does not provide the security of capital associated with a Cash ISA or a deposit account with a bank or building society.

The favourable tax treatment given to ISAs and Junior ISAs may not be maintained in the future as they are subject to changes in legislation.

The Last Word

“Your very existence is wrapped up in the things you need to fulfil. Whatever you choose for a career path, remember the struggles along the way are only meant to shape you for your purpose.”

– US actor Chadwick Boseman, the star of Black Panther, who passed away last week after a private four-year battle with cancer.

The information contained is correct as at the date of the article.

AXA Investment Management, Magellan, Nippon Value Investors, and TwentyFour Asset Management are fund managers for St. James’s Place.

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 or Wellesley Wealth Advisory.

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