Investment Committee 01/09/2021

The last eighteen months have been a rollercoaster ride. Sars-CoV-2 proved to be an unknown quantity that led to multiple approaches from different countries to deal with the viral outbreak. We have learned many lessons, and we continue to do so. For one thing, science has given us some reasons to be hopeful.

As global cases have been rising recently, we have seen a clear bifurcation in outcomes. Countries and states in the US with a relatively lower level of vaccine coverage have had the worst of the current outbreak. Case numbers, case fatality rates and hospitalisations are all worse in the unvaccinated populations. Now, vaccines do not completely prevent transmission, but even where infection occurs, it is a milder disease in the vast majority of cases. The forgotten benefit is that blunting the disease reduces the likelihood of other viral sequel, in this case collectively known as ‘long Covid’.

UK employment data was stronger than expected with the unemployment rate falling to 4.7% for June, lower than the 4.8% forecast figure. Employment growth also continues to recover with the 3-month/3-month figure coming at 95K, significantly stronger than 25K forecast. July’s CPI (inflation) was a bit below forecast at 2% y-o-y versus a 2.3% forecast figure, however, there remains strong indicators that we are likely to see higher rates in the coming months given the combination of higher commodity prices and some sign labour market shortages.

In Europe GDP data confirmed a strong recovery in output in Q2, with the year-on-year coming in at 13.6%. The Eurozone inflation rate for July was stable at 0.7%, however as elsewhere higher commodity prices are likely to lead a further near-term increase in inflation.

In both the UK and Europe valuations still look favorable compared to the US, where valuations remain stretched (a common theme in our investment committees of late).

US retail sales for July were somewhat disappointing with the ex-auto and gas rate being negative at -0.7% against a forecast figure of -0.1% – with some indication that the spread of the Delta variant and higher inflation has dampened consumer spending. The US labour market however continues to be stable with the initial jobless claims figure now at a pandemic low 384K (a fall of 29K) for the week ending 14th August –the fourth straight decline in the rate.

Elsewhere in the world, emerging markets have not performed as well as expected but the long-term play on these exciting regions, continues. We expect the emerging markets over the 20’s to play an essential role in the world economy, as such, allocation towards these regions continues to be a sensible bet.

Lastly, it’s worth noting that bonds (particularly those in developed regions), have continued to stablise over recent months but they will struggle against rising inflation and interest rates, if we see central banks start to (although calmly) raise interest rates.

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This article is for information purposes only – should not be perceived as financial advice. We recommend you should always speak to a financial adviser before making any investment decisions.

Please note past performance is not reliable indicator to future returns. 

Your investment may fall as well as rise and you may not get back what you put in.