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A collation of recent insights on markets and economies taken from the comments made by chairmen and investment managers of investment companies – have a read and make your own minds up. Please remember that nothing in this note is designed to encourage you to buy or sell any of the companies mentioned.
November was a remarkable month, with announcements on the vaccine front delivering a feat of science few thought possible. The news triggered a resurgence in stocks affected by measures taken to tackle COVID and ‘value’ stocks were favoured over ‘growth stocks’.
A new phase of growth
We hear from JPMorgan Elect Managed Growth, with its managers Katy Thorneycroft, Simin Li, and Peter Malone, noting that the world has entered into a new phase of growth. Their favoured regions are the US, Europe and Asia as their growth is levered to global growth.
Joe Bauernfreund, the manager of AVI Global, says that when economies return to some form of normality he expects high-quality companies with solid balance sheets and reasonable valuations to thrive, especially against a backdrop of ultra-low interest rates.
The manager of Scottish Mortgage says it is important when accessing companies to look beyond the pandemic’s near-term impact on share prices. The manager provides a case study on Tesla.
Brexit goes down to the wire
The manager of Chelverton UK Dividend noted that in light of UK equities being at their cheapest in around 40 years, once there is greater certainty on COVID and Brexit, investors are likely to look for value in the UK.
Jane Tufnell, chair of Odyssean, says that at some point, the recent strong performance generated by highly rated higher growth AIM companies, particularly those in the technology and telecoms sectors, will lose momentum.
Iain McCombie and Milena Mileva, the managers of Baillie Gifford UK Growth, list a few reasons that might be behind the underperformance of UK stocks, including the ‘old economy’ makeup of the market.
According to the chairman of Shires Income, Robert Talbut, the sharp shock to the global economy has also reset the economic cycle. Prior to the health crisis, many investors were waiting for the next recession. That has now come and there is a chance of a period of sustained recovery and growth as businesses restock, initiate new investment plans, and consumers spend savings that many have been able to build up over the past year.
Richard Burns, the chairman of Aberdeen Standard Equity Income, believes that while the failure of President Trump to win re-election has been generally welcomed outside the United States, it is doubtful whether this will carry much significance for investors in the UK. Much more important to them will be the outcome of the Brexit negotiations, whose terms, astonishingly, are still to be agreed. Richard adds that it does appear likely that whatever else happens, extremely low-interest rates at all maturities will continue, at least into the medium term. This should provide firm support for asset prices in general and ordinary shares in particular.
Montanaro UK Smaller’s manager says that until the “deal or no deal” uncertainty is resolved, investors are likely to continue in their cautious approach to UK equities.
Troy Income & Growth’s manager notes that a select few UK companies resumed dividend payments over recent months, reflecting the marginally more stable trading backdrop for many businesses. Nevertheless, the manager continues to believe that the overall level of market dividends will be structurally lower going forward. It is also noted that a better balance between paying out dividends and retaining cash for reinvestment or de-gearing will be in the longer-term interests of UK shareholders.
The manger’s report for Schroder Income Growth offers the view that the gloomy backdrop of COVID-19 and Brexit has obscured the positive long-term prospects of many UK businesses.
James de Uphaugh, manager of Edinburgh, believes that the perception of the UK market predominantly providing access to relatively staid stocks, such as high street banks and oil producers, is unfair.
Richard Staveley, manager of Gresham House Strategic, takes a step back from the main newsflow to highlight that there appears to be little analysis on the medium-term effects of this historic stimulus. He says that the burden of debt on governments and many companies will linger; austerity appears a highly unpalatable option, and tax increases across society are likely to be necessary alongside a change in perspective on inflation.
Patrick Harrington, manager of Value & Income, says that, in the UK, the true economic cost of the pandemic is still being disguised by the Chancellor’s furlough scheme, but this comes to an end shortly, to be replaced with a far less generous job retention programme. Patrick says that it is likely that unemployment will rise sharply in the coming months and this is likely to dent consumer confidence.
BlackRock Smaller Companies’s manager, Roland Arnold, is of the view that COVID-19 is simply bringing on an acceleration in many of the structural trends that have been happening in various industries over many years.
The manager’s report for Downing Strategic Micro-Cap states that over the next few years, we are likely to see the highest number of corporate failures for decades.
Global emerging markets
Chetan Sehgal, manager of Templeton Emerging Markets, takes us on a detailed tour around the world’s largest growth markets, including China, India, Brazil, and South Korea. On the latter, Chetan says that it embodies much of emerging markets’ new realities; namely institutional resilience, improved economic diversification and the emergence of world-leading companies.
John Rennocks, chairman of Utilico Emerging Markets, says the war on COVID-19 has taken its toll and is ongoing. He notes that many nations have seen borrowings balloon to over 100% of GDP, interest rates trending to zero and unemployment jump.
Biotech & healthcare
According to Sven H. Borho and Trevor M. Polischuk, managers of Worldwide Healthcare, the industry has responded to this crisis in unprecedented fashion, from collaborations with academic institutions, industry partnerships, and collaborations with government bodies around the world. The managers refer to the comment by Pfizer’s CEO, Albert Bourla, that its co-announcement with BioNTech of positive Phase III data announcement was the “largest medical breakthrough in the past 100 years.”
Geoff Hsu, manager of Biotech Growth, discusses the encouraging trend of M&A activity continuing, despite management teams operating remotely.
The manager’s report for International Biotechnology also highlights the M&A trend. The manager says that their view that many companies within the sector remain undervalued is supported by the increased level of M&A.
We have also included comments on the flexible investment sector from Hansa, Personal Assets, and JPMorgan Global Core Real Assets; Europe from Baillie Gifford European Growth and JPMorgan European Growth; Japan from Aberdeen Japan; the Asia Pacific region from Henderson Far East Income and Schroder Oriental Income; Latin America from Aberdeen Latin American Income; India from Aberdeen New India; private equity from HarbourVest Global Private Equity; renewables from JLEN Environmental Assets and NextEnergy Solar; and UK property from Schroder REIT, Urban Logistics REIT, Sirius Real Estate, Civitas Social Housing, and AEW UK REIT.
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