30 March 2021
US stocks closed the week on a positive note – welcome news after an unstable few days where recent moves continued to play out in equity markets.
The S&P 500 Index of large US companies finished the week higher, but all that glittered was not gold, as there were, nevertheless, major fluctuations in the share prices of certain companies. The last few weeks have seen some investors distance themselves from large US technology companies, instead leaning towards so-called ‘cyclical’ stocks that are set to reap the most from the anticipated economic recovery.
In spite of concerns over a third wave of COVID-19, European stocks ended the week higher. Tight lockdown measures were implemented in Belgium again last week due to increased case numbers. Chancellor Angela Merkel did a U-turn on plans to lock down Germany again over the Easter holiday and she also made the surprising move of apologising to the nation for all the indecision.
In the UK, meanwhile, the most recent economic data appears to signal that the economy is outperforming expectations. With the government’s ‘roadmap’ gradually easing the country out of lockdown in the coming weeks, data indicate that employment and public finances have been robust this past year. A Bank of England official announced on Friday that the UK’s GDP figure for the first three months of the year will likely exceed the estimate it provided back in February.
For investors in the UK, the probability of a more rapid economic recovery is, on the whole, positive. It backs up the notion that the relative prospects of UK equities are promising, particularly when compared to more expensive parts of international markets – for example, US technology stocks.
While markets were generally buoyant on the Continent, the exception was Turkey, which responded less than favourably to the news that Erdogan had sacked the country’s central bank governor. The President appeared to have fired Naci Agbal due to his decision to increase interest rates – this makes him the third Turkish central bank governor to have been given his marching orders in the past two years. Turkey’s stocks, bonds and currency subsequently fell on the news, as investors minimised their contact with the country.
Mark Dowding of BlueBay Asset Management, Co-manager of the St. James’s Place Strategic Income fund, commented that the sudden change “serves as a reminder of the risks and also the opportunities to be had in emerging market-related assets”.
On the other hand, he further noted that bond returns are low in many developed markets. Likewise, certain clusters of the equity markets in developed countries are at expensive levels, meaning that investors should nonetheless weigh up the part that emerging markets might play in their portfolios.
“We believe that it continues to be attractive to identify opportunities, particularly at a time when prices may be falling for no fundamental reason and may just be repricing on contagion fears,” he added.
Doubt, brought about by political issues, is one of the fundamental risks in emerging markets, as evidenced by recent events in Turkey. It is, however, also an increasingly deciding factor in the US–China relationship. Now the world economy is starting to reopen thanks to successful vaccine programmes, the bond between the world’s two great powers is once more near the top of the list when it comes to events that might move markets.
The share prices of large Chinese technology companies dropped last week, following news that some of them might be removed from US stock exchanges’ lists. The US financial regulator said on Wednesday that foreign companies listed in the US will be expected to cooperate with auditors to be able to have their stocks bought and sold in the country.
This has not been the case in the past for China’s biggest companies, which casts doubt on the prospect of the financial systems of China and the US converging. Trump signed the new rules into law at the end of his term, yet cross-party support remains in Washington, meaning that similar opposition is likely, moving forwards.