03 September 2020
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.”
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!