Market Commentary – economies and sectors re-opening boosts sentiment

Market Commentary – economies and sectors re-opening boosts sentiment

Continuing the desire to provide our clients and prospects with views on the market place, I hope you find the notes below both informative and of interest. Whilst we continue to believe there are opportunities in the investment markets, we are also finding that many of our clients, in light of recent events, are taking stock of their current and future financial affairs. A desire to gain a heightened sense of Financial wellbeing has started to emerge and our article on Financial wellbeing may well be of interest to anyone seeking that peace of mind for the future.

Whilst support from Central Banks and Government, coupled with pockets of economic recovery, have boosted sentiment over Q2, we anticipate a more subdued period ahead for the financial markets. The long term opportunities remain for investors in businesses that have a strong cash position or are structurally important businesses for the recovery. It continues to remain important to be diversified across asset classes to minimise risk and reduce volatility. Read our Q2 market update below across our core asset classes:

Quarter 2 for 2020 saw strong returns across most asset classes as extraordinary support from Central Banks and Governments helped rally markets, alongside the reopening of some economies and sectors. There was also an agreement between the oil producers of a cut to supply which allowed the price to stabilise before rising into the period end.

Within fixed income, returns in corporate and high yield bonds remained competitive with risk assets as central banks supported the market. The IBoxx UK Corporate Bond index rose by 9% over the period whilst the Barclays Global High Yield index rose by a further 3.6%. This provided a good opportunity for capital return and whilst yields came down their attractiveness over the yield on government debt remains.  In some areas government debt continues to offer a negative return.


In other asset classes most property funds remain suspended as the surveyors have been unable still to ascertain clear valuations as a result of the lockdown restrictions and a lack of comparative transactions in the market. An updated valuation is required to provide a fair and accurate unit price for transactions in the fund. As we approached the end of the quarter property returns have diverged with office and high street retail being marked down whilst modern distribution facilities have been more fully valued. Investors have continued to show some caution with gold performing favourably over the period as investors sought its defensive capabilities.

Equity & Fixed Income Market Returns*

3m 6m 1yr 3yr 5yr
FTSE All Share 10.2% -17.5% -13.0% -4.6% 15.2%
MSCI Europe x UK 18.1% -2.6% 0.0% 9.2% 46.7%
S&P 500 20.8% 3.6% 10.1% 40.2% 105.5%
Japan – Topix 11.7% 2.1% 4.7% 16.9% 57.9%
MSCI AC Asia ex Japan Equities 17.1% 2.1% 4.7% 16.9% 57.9%
MSCI Emerging Market Equities 18.5% -3.3% -0.5% 11.2% 46.5%
IBoxx UK Gilts – All Maturities 2.5% 8.9% 11.2% 18.9% 33.8%
IBoxx UK Corporate Grade Bonds 9.0% 2.9% 6.5% 14.2% 33.2%
Barclays Global High Yield Bonds 12.6% 2.2% 1.0% 12.3% 57.8%

*sourced from FE Analytics.


Equity markets rose sharply over the quarter in sterling terms with the various indices returning S&P 500 20.8%, the FTSE All Share 10.2%, and MSCI Emerging Markets 18.5% respectively.

Both governments and central banks globally have continued in their efforts to support the markets through stimulus measures. There is talk of further fiscal packages to come with a $1 trillion infrastructure project being discussed in the US, as well as other things being considered in the UK and Europe, which should all be supportive of markets. Re-opening of some of the economies and sectors also helped move markets higher.

US markets advanced as investors were encouraged as individual states and businesses reopened. Corporate earnings levels have been under pressure but many companies in the S&P 500 are trading at the most expensive levels they have been in the past two decades on price / earnings multiples.  The US consumer which makes up 2/3rds of the country’s growth reduced their spending over the period in favour of saving. As the country comes out of lockdown the consumer is being encouraged to spend which should support the wider economy.

In Europe, markets again had a positive quarter with the MSCI Europe ex UK index rising by 18.1% as lockdown measures started to ease and there was further central bank easing. In addition a €500bn recovery fund proposal was put forward by Angela Merkel and Emmanuel Macron to help to reform the various economies. There has also been fiscal packages throughout the areas which should help the local economies with Germany as an example unveiling a €130bn package involving tax cuts and spending measures.

In Asia, markets were also generating positive returns with China’s domestic economy continuing to show signs of recovery alongside a bigger fiscal support package from the Government. Other parts of Asia have continued to support markets through interest rate cuts and further stimulus support. Overall the easing of global lockdown is starting to help with investor sentiment and support for some of the more export led countries.

Following the indiscriminate sell off of equities in Q1, mid and smaller size companies have rebounded over the second period. Actively managed funds held within the portfolios have been able to recycle proceeds into new long term opportunities as the market continues to adjust to the recent movements.

The chart below shows the recovery across the FTSE indices in the UK across the period. Having endured the full severity of the sell off the recovery in the mid (FTSE 250) and small cap indices (FTSE UK All Small Cap) has outstripped the recovery to large cap (FTSE 100) assets. The recovery reflects the greater domestic focus amongst the indices despite the headwinds of Brexit that remain. The FTSE 100 remains weighted towards mining and financial stocks that have yet to recover as earnings remain under pressure.

The UK Stock Market returns Q2 for UK Large (FTSE 100), UK Medium (FTSE 250) & UK Smaller (FTSE UK All Small Cap) indices

Fixed Income

Central Banks have continued to loosen monetary policy by decreasing interest rates to help the economy through this period. The FED kept rates at 0.25% over the quarter as well as providing further monetary support with an announcement to extend the corporate bond buying to include ETFS and latterly individual corporate bonds which should continue to provide support to the markets. The UK also kept rates at 0.1% and continued its bond buying program by a further £100 billion to take the total asset purchases to £745 billion.

In Europe, the European Central Bank kept rates at 0% and increased its asset purchase program by a further €600 billion taking its total to €1.35 trillion to help mitigate the negative impact of COVID and provide countries with extra room for fiscal policies.

The intervention of central banks and other monetary easing has driven the prices up and the income level down across the spectrum. Both the US and Europe have packages in place to support investment grade companies through these times. High yield areas of the market are likely to see an increase in defaults but again careful selection on an individual basis from active managers is paramount.

In the UK, the yield on 10 year government debt moved significantly lower as a result of the stimulus measures resulting in the yield dropping from 0.35% to 0.17% with capital prices increasing. Investors looked to the corporate debt markets to provide a higher level of income.


Looking ahead the investment outlook in the short term may remain more volatile as concerns around a further spike in cases and weak economic data may unnerve markets. Conversely positive news flow should allow for the global recovery to continue.  Within markets we anticipate a more subdued period however long term opportunities remain for investors in businesses that have a strong cash position or are structurally important businesses for the recovery.

We remain at the margin overweight equities favouring active managers who have been trimming and adding to positions when opportunities arrive. In the fixed income space the portfolios are still positioned to the more defensive companies with strong cash flows to pay the debt at this stage.

At this stage it remains important to be diversified across asset classes, sectors, geographies and strategies to have flexibility to take advantage of the changes in the markets throughout this period.

This information is obtained from sources considered reliable, but its accuracy and completeness is not guaranteed by Anderson Strathern Asset Management Limited. Neither the information nor any opinions expressed constitute financial advice. Investments can fluctuate in price, value and/or income and may return less than the original amount invested. Past performance is not necessarily a guide to future performance. Anderson Strathern Asset Management Limited is authorised and regulated by the Financial Conduct Authority.

Information sourced from FE Analytics.