WeeklyWatch – Chinese crackdown concerns and Delta-variant distress

03 August 2021

Stock Take

Asian dismay

Asian stocks reached a seven-month low at the start of last week, as the market felt the burden of Delta-variant COVID-19 outbreaks in several markets, alongside continuing concerns around a crackdown from the Chinese Government.

The Nikkei 225 dropped more than 2.5% during the week, with significant falls on the Tuesday and Friday. This resulted in the Japanese index closing the month down 4.96%, in spite of any Olympic euphoria.

The falls were particularly sharp in the early part of the week, as China’s continued crackdown on tech companies and the private tutoring industry alarmed investors. Despite the fact that Chinese regulators and official media communicated mid-week messages to allay some of these fears, it was insufficient to push the Hong Kong Hang Seng, or large mainland Chinese indices, out of negative territory for the week as a whole.

A mixed picture

Such regulatory actions by China also affected US stocks – notably those impacted by Beijing’s clampdown. Tuesday saw the tech-heavy Nasdaq fall 1.2% over these worries – its worst-day performance in more than two months, with the S&P 500 and Dow likewise falling.

Tuesday was followed by successive strong results from US companies, which helped buoy prices in the latter half of the week. A combined quarterly profit from Apple, Alphabet and Microsoft of $57 billion made headlines. Furthermore, the Federal Open Market Committee (FOMC) agreed last week to neither raise interest rates nor adjust the pace at which it is buying government bonds.

Mark Dowding, Chief Investment Officer at BlueBay Asset Management, commented:

“Our analysis from the FOMC meeting was that the tone from Powell was relatively upbeat. At this point, the Fed is waiting for more confirmation that the labour market is making robust progress before announcing steps to begin withdrawing policy stimulus. We will see two payroll prints between now and the September Fed meeting, and if these show sufficient strength, then we would continue to look for a taper announcement at that meeting, in line with a revision to Fed economic projections for 2022 and beyond.”

The week also witnessed the US share its GDP growth for the quarter – 6.5% on an annualised basis. While this returned the US economy to its pre-pandemic levels, it fell well short of forecasts of 8.5%. On Friday, markets were hampered by the fact that COVID-19 cases are swelling again across much of the US, bringing fears that the next quarter might likewise see slower-than-expected growth.

In the zone

In the EU – where vaccine levels are playing catch-up with the US and UK – GDP figures were generally less discouraging in the larger economies. Germany missed its estimates, but Spain, Italy and France all surpassed expectations, to one extent or another.

Together with some robust company results, this helped propel the STOXX 600 to record highs on Thursday, although it then lost some of this growth on Friday. All things considered, however, it rounded off the week and the month up.

Azad Zangana, Senior European Economist and Strategist at Schroders, noted:

“The eurozone is emerging from its second recession since the start of the pandemic as businesses slowly reopen. Restrictions on contact services that limit or prohibit certain activities remain, but the slow return to some normality is welcomed by all.”

He added:

“Given the precipitous fall in activity last year, we always expected a sharp rebound once restrictions were lifted. Despite only a partial unlocking, activity indicators, such as the macro composite purchasing managers indices (PMIs), have soared. The aggregate eurozone PMI is at its highest level since February 2000.”

In the UK, meanwhile, the recent COVID-19 surge seems to be beating a retreat, and the number of UK adults having received a double vaccine dose exceeded 70% last week. As of the end of the month, around 90% of all UK adults had had at least one dose of the vaccine.

As with the EU markets, the FTSE 100 saw some encouraging growth on Thursday, only to see some of that diminish the following day. This meant it finished the week somewhat flat, yet it did, however, remain down for the month.

Wealth Check

Last month presented an insight into the state of the UK’s national finances, when the Office for National Statistics (ONS) reported that government borrowing fell in June. The government’s budget deficit (the difference between spending and income) dropped by £5.5 billion to £22.8 billion.1

That said, the Treasury is under duress to pay down the high levels of public debt brought about by its response to COVID-19 – interest payments were £8.7 billion in June, the highest since records began in 1997.2 In recent months, this has given rise to deliberations about changes to the UK’s tax regime in the future.

Aside from what the Treasury decides, taking just a couple of hours to review your own tax position could very well leave you much better off – not to mention giving you some peace of mind. Your Wellesley financial adviser can review everything with you within an hour or so, from checking your tax code and making sure you’re taking advantage of any Stocks & Shares ISAs, to maximising tax relief on your pensions contributions.

If you’re already drawing on your pension or thinking about dipping into it, your adviser can talk you through accessing your cash in the most tax-efficient way, taking your overall finances into consideration. After all, why risk a large tax bill by withdrawing a lump sum from your pension when you could have taken it tax-free from another source? Likewise, if you’re concerned about leaving your loved ones with a hefty Inheritance Tax (IHT) bill, your adviser is there to help you work through steps to mitigate this.

If you need some support in identifying simple-but-effective tax-saving opportunities, talk to the Wellesley Wealth Advisory team about completing a Tax Health Check.

Sources:

1, 2 Office for National Statistics, Public sector finances UK: June 2021

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

 

The Last Word

”I say put mental health first. Because if you don’t, then you’re not going to enjoy your sport and you’re not going to succeed as much as you want to.”

US gymnast Simone Biles reflects on the importance of taking care of your mental health.

 

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

BlueBay Asset Management and Schroders 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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