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Weekly view – Fog warning

Coronavirus cases in the US are rising and high frequency data in the US such as retail foot traffic and employee working hours have flatlined. Meanwhile, in Q2 results, USD36 bn in trading and fixed-income revenues managed to make up for higher loan provisions for US banks. This week, the spotlight will be on Q2 results from the tech giants. With expectations high, they will need to surprise on the upside to ensure markets continue to shine. Combined with high valuations, circumstances suggest using the drop in the price of volatility protection since the peak in mid-March to cushion equity exposure in portfolios. All told, given limited visibility and signs of complacency, we are quite comfortable to maintain a slight underweight in equities.

The virus has been accelerating tensions between China and the West. As the UK decision to phase out Huawei from its 5G market and rumours of a US clampdown on Tik Tok show, what started as a trade war is now turning into fierce technological rivalry. With little indication that a President Biden would be any less tough on the Chinese, the best markets might be able to hope for is that this ‘decoupling’ between China and the West proceeds in an orderly manner, without major accidents.  Meanwhile, the CSI 300 was down heavily on the week, in part at least because of efforts by the state-controlled media to cool down retail investor exuberance. In spite of the stock-market volatility, we remain upbeat on greater China long term. While recognising the challenges faced by some mega firms on the global stage, we continue to see potential in domestically (and regionally) focused companies.

An agreement on a recovery fund at this weekend’s summit of EU leaders was never going to be easy, but at time of writing hopes were rising that an agreement was taking shape, sending the euro to a four-month high.  The important message sent by the fund, plus reiteration of the ECB’s commitment to emergency asset-purchase programme mean European assets are becoming investable again for some investors.

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Cesar Perez Ruiz
Cesar has more than 25 years’ experience running investment strategies in both wealth and asset management, with a strong bottom-up equity portfolio management track record and substantial multi-asset class investment strategy expertise.
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