This week saw global equity markets rise once again, in defiance of worsening economic fundamentals and forward earnings forecasts, primarily caused by the Covid-19 pandemic. To explain this paradox, we have included a link to a piece by Robert J Shiller, an American economist, entitled “Understanding the Pandemic Stock Market.”
Further underlying our cautious approach to current stock market prices, is our observation that many geo-political risks exist beyond the pandemic. These can be described as “The Elephants in the Room” and include the US-China trade war; a UK recession worsened by Brexit; deterioration in the relationship between Hong Kong and China; and a trade embargo by China on Australia, which has already severely impacted that country’s economy.
Details as to how we are defensively positioning our portfolios to face these risks, may be accessed in last week’s article entitled, Positioning your Portfolio to Minimise Downside Risks During the Pandemic.
- The US recorded a new single-day record on Thursday (the sixth record in ten days), with more than 59 880 new Covid-19 cases. The states that have been affected most have been those in the South and West that were among the first to ease lockdown restrictions.
- Oxfam has warned that Covid-19 is likely to kill more from hunger than it is from infection. As many as 12 000 hunger-related deaths might occur each day by the end of the year as a result of the social and economic fallout from the pandemic, Oxfam said in a report published on Thursday.
- After Carrie Lam, the Chief Executive of Hong Kong, insisted that the new National Security Law would not impact its citizens’ human rights, the metropolitan region has experienced a series of limitations. Schools were ordered to remove books and teaching materials, sparking concerns of censorship by the Chinese government. Police have been given expansive new investigative and surveillance powers, and local and mainland authorities have broadened authority to investigate, prosecute, and punish dissenters.
- The US has given formal notice of withdrawing from the World Health Organisation (WHO). Currently, the US is one of the top funders of the WHO and this action will come into effect in 2021. Meanwhile, the WHO has launched an independent investigation to evaluate the world’s response to the Covid-19 pandemic.
- The European Commission has reduced its forecasts for growth even further, revising its predicted contraction in the region to 8.7% in 2020. This is due to business re-openings in the bloc being at a slower pace than previously expected.
- Barclays, Credit Suisse, and Morgan Stanley are just some names of large companies that are trying to reduce their presence in London. These plans were set in place before the Covid-19 pandemic and were a response to Brexit, but the coinciding of these events could result in Britain’s worst recession in three centuries. With thousands losing their jobs and large companies moving elsewhere, the future of the large buildings in London and Canary Wharf is uncertain.
- Prime Minister Johnson told German Chancellor Merkel this week that he was ready to leave the European Union without a trade deal if no compromise could be reached. The statement comes as UK Finance Minister Rishi Sunak announced a new package of economic support to assist with the economic impacts of Covid-19. These measures will likely bring the deficit to £361.5 billion, or 18% of the national income, representing the highest level of borrowing since 1944 – 1945.
- Currently, the strong stock market (especially in the US) does not reflect the reality of how companies will be impacted over the long-term by Covid-19. The stock market is yet to catch up on how unemployment and reduced earnings potential will impact the markets – for analysis by Robert J Shiller, an American economist, on understanding the pandemic stock market and what to do as an investor, follow this link.
- Amazon stock has climbed 80% since its March low, resulting in a market capitalisation of $1.5 trillion. The company has been a Covid-19 beneficiary due to an acceleration towards e-commerce and cloud computing services during the pandemic, which closed many brick-and-mortar competitors and led to more people working remotely.
- Governments in India, Kenya, Sweden, and some other countries have actively promoted the move to digital payments to reduce person-to-person contamination. If you missed it in our Quarterly Newsletter, follow this link, for more on how Covid-19 has impacted consumer habits.
- This week witnessed a surge in new Covid-19 cases, particularly in Gauteng, as the number of confirmed cases rose in the province to 63 404. This was to be expected and is not necessarily attributed to the easing of lockdown restrictions as argued by PANDA in our point below. There are fears that the already strained public health care system will be breached as there is the risk that intensive-care units will run out of beds in the near future.
- Follow this link for updated analysis, including a series of graphs, from the PANDA group – a thinktank of actuaries and other experts. The group argues that the South African government’s response to Covid-19 has been based on incorrect information, thereby unnecessarily worsening the country’s economy and increasing the number of years of life lost.
- Eskom has warned that load shedding will be implemented as the generation system is under strain following the breakdown of several power stations.
- Capitec announced that it is expecting a 70% decrease in profits. This is a result of the lockdown measures causing many of the bank’s customers, many of whom are low-income earners, to be unable to keep up with loan repayments.
- News24 is considering transferring some print publications to online platforms and closing five magazines and two newspapers. This restructure will cost 660 jobs.
- Cilliers Brink, DA Shadow Deputy Minister for Co-operative Governance & Traditional Affairs, has written a right of reply responding to the analysis: DA’s cheap political points over an 11-week-old draft of municipalities’ recovery plan cloud real, important issues – Brink has argued that the DA’s fears of a power grab are justified. Follow this link for the article.
Sources: Dynasty, Reuters, Bloomberg Markets, The New York Times, Daily Maverick, and Moneyweb, etc