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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.
It was the year that nobody will forget. Industries re-shaped, many of them probably permanently, a change of leadership in the US, and finally a remarkable feat of human ingenuity in the roll-out of several vaccines by the year-end, are just some of the many themes touched on by managers and chairs in this final monthly roundup of 2020.
Unsustainable divergence in valuations?
BMO Global Smaller Companies’ manager, Peter Ewins, says that the scale of economic and market dislocation this year means that there are still opportunities even after the recovery so far.
James Will, chairman of Scottish Investment Trust, believes that the divergence of valuations within markets has reached new extremes, a position that they believe is unsustainable and likely to reverse.
As the events of 2020 serve to melt away inertia, Henry CT Strutt, chairman of Edinburgh Worldwide, expects digital-first models to prevail.
J William M Barlow, CEO of Majedie’s manager, says that it is noteworthy that the UK equity market, after four years of lacklustre performance, has been one of the better performers recently and market leadership in terms of sectors has broadened away from technology.
James Harries, manager of Securities Trust of Scotland, looks at the pandemic’s impact on equity income. James notes that it seems quite clear that income available to investors will remain scarce, owing to the need to keep debt servicing costs low.
The impact of the pandemic might ultimately provide a platform for long-awaited progress in improving productivity
The manager of Schroder UK Mid Cap anticipates a wobbly V-shaped recovery in terms of a rebound in GDP. The frustratingly low growth in UK Plc’s productivity is also touched on, in the context of how the pandemic might trigger progress.
George Ensor, manager of River and Mercantile UK Micro Cap, says that the opportunity set remains as rich as ever, noting the lack of sell-side coverage and the inability for larger funds to access micro-cap stocks.
Caution did not pay off in 2020
Nick Train, director of the manager of Finsbury Growth & Income, says that professional investors are always too cautious about the stock market and that this caution creates opportunities for those who take a more constructive view. Nick notes that the S&P 500 Index in the US was up 14% over 2020 and NASDAQ up 40%. Those gains may seem inevitable in hindsight, but few professionals would have predicted them.
John Dodd and Kartik Kumar, managers of Artemis Alpha, believe that the combination of Brexit and now COVID has created a significant value opportunity in exposed UK equities.
Money supply is now growing at its fastest rate since the 1980s
Robert Robertson, chairman of Lowland, paints a less sanguine picture. He reflects on how money supply hardly grew after 2007 but is now growing at its fastest rate since the 1980s. He says Lowland struggles to understand whether inflation can continue to lie fallow. We also face the prospect of increasing unemployment and bankruptcies. Robert adds that we cannot yet know which of these contrary influences will prevail.
John M Evans, chairman of BMO UK High Income, reflects on Brexit, the US election, vaccine developments, and what shape the recovery will take.
Ciaran Mallon, manager of Invesco Income Growth, reflect on the difficulties in predicting dividend growth.
China will continue to grow faster than its global peers
Shumin Huang, Rebecca Jiang, and Howard Wang, managers of JPMorgan China Growth and Income, say that China’s importance in the world continues to grow and its economy is likely to continue growing faster than its global peers. The economic transformation and evolving role of the country as a global economic superpower is well underway with recent challenges unlikely to derail progress in any material manner.
Capital markets reform has accelerated in China
Dave Nicholls, manager of Fidelity China Special Situations, notes that while there are variances between regions and sectors, overall, the economy continues to recover. The manager also discusses how we continue to see an acceleration in capital market reforms in China; from the loosening of short-selling restrictions, the lowering of foreign investment restrictions and the implementation of a registration-based IPO mechanism.
Technology & media
Technology’s outperformance does not need to end as the pandemic diminishes
In a far-reaching and detailed tour-de-force, Ben Rogoff, manager of Polar Capital Technology, discusses a multitude of topics. One of Ben’s conclusions is that technology’s outperformance does not have to end with the pandemic diminishing. COVID has clearly accelerated several key technology trends, but the redistribution of profit pools across myriad industries began long before the pandemic.
Fintech remains a very fertile ground
Tim Levene, CEO of Augmentum Fintech’s manager, believes that with the opportunity still in its nascency (incumbent players still control >90% of the global market for financial services) it’s all very much still to play for.
We have also included comments on the flexible investment sector from JPMorgan Multi-Asset; North America from Jupiter US Smaller Companies; Japan from Schroder Japan Growth and Baillie Gifford Japan; the global emerging markets sector from JPMorgan Emerging Markets, Genesis Emerging Markets, and JPMorgan Global Emerging Markets Income. Vietnam from VinaCapital Vietnam Opportunity and VietNam Holding; Thailand from Aberdeen New Thai; debt sector funds from UK Mortgages and Secured Income Fund; private equity from ICG Enterprise; hedge funds from Gabelli Merger Plus+; infrastructure from Infrastructure India; UK property from Alternative Income REIT, PRS REIT, and Target Healthcare REIT; and global property from Ceiba and Macau Property Opportunities.
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