Coming back from summer vacation, we are reminded of spring and how a pandemic can change our lives. The coronavirus is currently rearing its head again with isolated hotspots suffering a second wave of infections. While this feels like a déjà vu, the horror of the first wave and the ensuing lockdowns has worn off. Financial markets have rebounded from the lows reached during March. Some markets like the technology heavy Nasdaq and the S&P 500 have been setting new all-time highs. Gold has also been glittering, for the first time breaking the threshold of 2,000 US dollars an ounce earlier this summer. Meanwhile, the airline industry, financials, commercial real estate and the energy sector continue to languish. This recovery is as unusual as the recession it followed.
Some things have changed incredibly fast amid the pandemic storm. Wearing masks in public places? No problem. Work, spend, play from home? Sure. Some old stock exchange rules have also been upended. Investors following the saying “sell in May and go away,” have missed out on a number of opportunities in the past months. The good news is that it is not too late to enter the markets. Most remain attractively valued, supported by gradually improving economic data and unprecedented stimulus measures (in excess of 10 trillion US dollars) from governments and central banks across the world. We therefore remain positive on the outlook for equities, with a preference for those companies riding the structural growth trends that have received an additional boost from the Covid-19 lockdown – de-centralized supply chains, cyber-security, cloud computing, to name a few. Moreover, there is a wave of infrastructure spending coming our way, and we believe companies active in this area hold promise. Their defensive business models little affected by economic cycle make them more attractive than those of travel operators, for example.
Infrastructure also fits well into our sustainable investing strategy, as we now have a unique opportunity ahead of us to achieve a green global recovery from the pandemic. Some of the opportunities that come with recent “green” initiatives are highlighted in the “Investment in focus” article on page 8 and 9. So in a way, Covid-19 may have sped up the transition towards more sustainability and a replacement of coal burning plants by windmills.
Not all is well, of course. Many companies have laid off staff and more restructuring will follow. Some investor continue to worry about the second spike in infections as well as excessive inflation. For those who fear the devaluation of their assets resulting from rising inflation, we recommend holding real assets such as gold. Equities, of course, also offer such protection. Uncertainties linked to the outcome of the upcoming US presidential election in early November also continue to weigh on investor sentiment. President Donald Trump continues to trail his challenger Joe Biden in the polls, but the balance could at any time swing in the incumbent’s favor. The Trump administration’s anti-China rhetoric is likely to become more strident as the election approaches, which could unsettle financial markets and the economy.
We nevertheless remain confident regarding the global economy and financial markets, currently buoyed by central banks and generous recovery packages. While the pandemic continues to haunt us, it may have helped us put more focus on creating a more sustainable future.
