Henry James International Management September Market Commentary

After five consecutive months that saw the MSCI EAFE index deliver positive returns, September was down -2.60%. Despite this fall, September was a good month for materials, industrials, consumer discretional, information technology and communication services. We were over-weighted in consumer discretionary and information technology and underweight in financials, which generally helped our portfolio performance on both fronts.

As we tumble headlong into Autumn, our question is whether the overall September slump is a blip in the market’s performance that has defied the destructive effects of the pandemic to this point, or is it a sign of things to come for the fourth fiscal quarter and first half of 2021? Of course, it is entirely possible for an economy to be in a midst of a recession while markets go from strength to strength; indeed, if there was any doubt COVID-19 has made it unequivocal. Jobs and businesses are under threat and in many cases are evaporating, and yet those with money in the market for the most part have become wealthier.

In spite of COVID-19’s drag and the recent market blip, global economic growth has remained strong and September marked the 5th consecutive month of falling unemployment in the US, which has diminished to 7.9%.  To put this into perspective in February the unemployment rate was at the 50 year low of 3.5% and then after the outbreak it reached a high of 14.7% in April.  There was additional good news during the month when the consumer sentiment index improved for the second month in a row in September. The index and lower unemployment further points towards a V shaped recovery for the US.

Yet, despite our optimism and the market’s pandemic track record so far, COVID-19 has more than enough poison to bring equities to their knees. While the US’s COVID-19 infections and deaths were less in September, the numbers were still unnerving: 1.16 million infections and some 22 thousand deaths. The spirit of optimism begs us to think our numbers will continue to diminish; however, using the rest of the world as an example, even the most fastidious measures are no match for the winter season encroaching upon us (and, let’s be frank: our measures in the US are far from fastidious). It consequently stands to reason that we will see a second wave, too. Of course, it is a possibility that the second wave will be more benign than the first – but a second wave of any sort will likely not be good news for investors. Latin America, for instance, consolidated its place atop the league table in September for total cases and deaths, at 9.6 million and 350 thousand, respectively. Markets responded by falling by -5.11% as measured by the MSCI Emerging Markets Latin America index. Europe and Britain are fully in the midst of its second wave (a thoroughly un-benign one, we might add), with the former’s equities falling by -3.32% in September as measured by the MSCI Europe index and the latter’s by -4.98% as measured by the MSCI United Kingdom index during this same period. Unless the pandemic improves, one does not imagine these numbers will change dramatically, or really at all. Indeed, should things continue to worsen, one would not be surprised to see U.S. markets erode even further. If a second wave is damaging market performance in the rest of the world, it would be naïve to assume it will be different back home.

Of course, optimism may be an easier ideal to embrace if a vaccine were just around the corner. Yet, despite what President Trump may suggest, a more clear-headed assessment of the facts would suggest that positive phase 3 trial results may be available any day now to the middle of next year. If results are positive, a vaccine could receive regulatory approval within a month, which experts believe would allow for early dissemination to vulnerable groups and front line key workers shortly thereafter. However, it would still apparently take another 6 months for full phase 3 trial data results to come in and be analyzed before mass public vaccinations could begin – and this would assume that everything every step of the way will go according to plan. In short, if we listen to the doctors and scientists, most of us will not have a vaccine at our disposal for a good while yet, which – aside from the worrying health realities that entails – suggests markets will have unusual volatility influencing them well beyond winter 2020/21.

But it is not all dire news: we are now pretty good at fighting COVID-19 once somebody is infected, in terms of anti-viral drugs, steroids and antibody treatments. Indeed, the poster boy for the effectiveness of such a cocktail is President Trump, who has apparently convalesced very nicely. Of course, while we all should be eager to remember that most of us are not afforded the same level of healthcare enjoyed by the leader of the Free World, the evidence is clear to see that the medical community actually knows how to fight COVID-19. Despite infections continuing to soar, death rates are very low, and one assumes that our ability to treat the virus will only improve, too, which is a great cause for hope for our lives and health in a pre-vaccine world. Of course, it is also brilliant news for economies and markets as it may well be possible to live, spend and consume with relative liberty while COVID-19 is hanging over us.

Last month we asked if governments and central banks had the appetite (or liquidity) to bail everyone and everything out again. In America ‘appetite’ may have been the wrong word, as the impediment seems to be rather pre-election partisan bickering which is blocking any chance at a modest stimulus package. As ever, we hope cooler heads prevail. This often seems like a vain hope and yet it frequently materializes at the last moment. In the UK, Chancellor Rishi Sunak is attempting to be more financially conservative (ironically not difficult given how the economy was effectively nationalized for 6 months) in his attempt to offer another lifeline to workers and business; however, it is becoming increasingly apparent that the UK’s second wave will likely require something a bit more similar – or even more robust than – his fiscal response to the first wave. According to European Central Bank President Christine Lagarde, wide-ranging fiscal support is essential to guide economies through the pandemic. We agree and hope that governments and central banks will not lose their nerve and recognize that they must keep digging into their pockets if economies (and markets) are going to be in relative ship-shape at the end of the pandemic.

The final item to touch upon before we check out is the November 3rd US General Election. While it may stand to reason that a Trump victory may be a good thing for markets in the short term – and possibly even beyond – and a Biden victory may temporary subdue equity performance – one would be wise to remember that markets can succeed and fail in both Republican and Democratic White Houses. What is more, the performance of the stock market is generally based on both current and perceived future corporate earnings. Based on this, we believe that markets are predicting better times ahead above and beyond the transient joy/dismay the winning and losing sides will feel once the election’s result is declared. With that in mind, maybe the markets know something we all do not: that a vaccine is imminent; that economies are resilient enough to have a V-Shaped recovery in the face of adversity; that markets will continue to perform; that life may return to normal sometime soon? We certainly hope so.

Disclosures

This material is prepared by Henry James International Management and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this material are obtained from proprietary and nonproprietary sources believed by Henry James International Management, to be reliable, are not necessarily comprehensive and are not guaranteed as to accuracy. No warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions is accepted by Henry James International Management, its officers, employees or agents. This material is based on information as of the specified date and may be stale thereafter. We have no obligation to tell you when information herein may change. Reliance upon information in this material is at the sole discretion of the reader. Certain information contained herein may constitute forward-looking statements. Estimates of future performance are based on assumptions that may not be realized.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Any indices chosen by Henry James International Management to measure performance are representative of broad asset classes. Henry James International Management retains the right to change representative indices at any time.

Henry James International Management and its representatives do not provide legal or tax advice. Each client should always consult his/her personal tax and/or legal advisor for information concerning his/her individual situation.

Henry James International Management August 2020 Market Commentary

August was yet another month of comparatively good market returns in the face of fresh COVID-19-related anxiety. It was a good month for communications, tech, software and consumer discretionary stocks helping markets continue in their upward trajectory. And yet, The United States has seen another 1.45 million infections and 30 thousand deaths in August. In this same period, the rest of the world – with Latin America and Asia particularly affected – saw an estimated increase of 7.8 million infections and 176 thousand deaths. Despite this, markets remain relatively impervious, with the US, Japan, Hong Kong, China and South East Asian emerging markets stock indices leading the way. Of course, not all equities are doing well. Notably financial, energy and value-orientated stocks have suffered. Despite the fact that COVID-19 has changed all of our lives (and has taken many along the way) one might be tempted to think that markets can continue to grow despite the pandemic; some may even be tempted to believe that the global economy will learn (or, indeed, has already learned) how to operate with COVID-19 and that everything will be fine, economically speaking. While we remain optimistic, we are acutely aware of the direct and indirect damage a lack of vaccine in the medium term would inflict on markets and the global economy.

Global economic growth has remained strong in August; and economies have been getting back on their feet since April’s bottoming out thanks to government and central bank expenditures, a return to work and restocking. The JPMorgan Global Composite Purchasing Managers Index, which tracks the current direction of the manufacturing and service sectors, has increase from a low of 26.5 in April 2020 to 52.4 points in August which is where it was in January 2020 before the crisis occurred.  The V shaped recovery has powered forward corporate revenues up from their June low and we will expect to see higher revenues in to 2021. In addition to current revenues, the consensus estimates of forward-looking revenues appear to have a bright future.  Moreover, many people are moving out of major cities to suburbia. This trend has helped home sales and everything that goes along with moving from a relatively small apartment to a large house; i.e. cars, furniture, curtains; etc. Consequently, even General Motors has done well in the recovery.

And yet, it appears to us that markets are pricing in a medium-term end to the COVID-19 pandemic – as if a vaccine is a foregone conclusion and a second wave will be more of a gentle Mediterranean lap. We believe the failure to produce a successful vaccine would hit markets hard; moreover, it will keep the sectors who have not benefited from the rebound/V-shaped recovery in the precarious position in which they have been trapped since the first wave. Lockdown – in either its draconian or partial form – suffocates economies and the businesses that are their building blocks. Would governments and central banks have an appetite (or liquidity) to bail everyone and everything out again? We are not convinced that Congress will act in time; moreover, there simply is not an endless magic money tree.

Despite entertaining this worrying scenario, we have faith that we can survive without a medium-term vaccine solution and that we can avoid the second wave being on the same scale in terms of the death and economic destruction the first one inflicted. Global healthcare systems understand COVID-19 in a way it did not in early 2020; we also have bona fide treatments vis-à-vis Gilead’s Remdesivir and other ones that are anticipated to be forthcoming by the end of 2020 and/or beginning of 2021. Routine testing in vastly increased capacities is in the works around the world, which we believe will offer people the ability to live with a modicum of normality and enjoy the confidence of engaging with the outside world (and economy) as non-carriers of the virus.

In the meantime, we are hopeful that the “Magnificent 7” can continue to push the markets in the right direction and that a better grip on COVID-19 might see other sectors join in the rally. We are also excited by the prospect of the pharmaceutical sector erupting once somebody creates a successful vaccine that has the power to release people and the economy from the shackles of the pandemic.  While these remain turbulent times with significant hurdles ahead, we remain long term investors seeking sustainable trends as our world’s economy continues to rapidly evolve.

Disclosures

This material is prepared by Henry James International Management and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this material are obtained from proprietary and nonproprietary sources believed by Henry James International Management, to be reliable, are not necessarily comprehensive and are not guaranteed as to accuracy. No warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions is accepted by Henry James International Management, its officers, employees or agents. This material is based on information as of the specified date and may be stale thereafter. We have no obligation to tell you when information herein may change. Reliance upon information in this material is at the sole discretion of the reader. Certain information contained herein may constitute forward-looking statements. Estimates of future performance are based on assumptions that may not be realized.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Any indices chosen by Henry James International Management to measure performance are representative of broad asset classes. Henry James International Management retains the right to change representative indices at any time.

Henry James International Management and its representatives do not provide legal or tax advice. Each client should always consult his/her personal tax and/or legal advisor for information concerning his/her individual situation.

Henry James International Management July Market Commentary

In July we saw the communications, technology, software and pharmaceutical industries continue to drive markets upward. In fact, some companies are thriving, not in spite of, but because of COVID-19. As the pandemic rips through the South American winter, we may be seeing a harbinger of the increasing threat in store for us in the Northern Hemisphere during our own frosty season. Sadly, even during the oppressive summer heat, COVID-19 is having a grand old time at our expense in the United States, particularly in the Southern States. Many countries in Europe and Asia are doing a far better job of opening their economies and remain the gold standard for the rest of the world to emulate. And yet, though Europe and Asia’s infection and death rates are comparatively lower, evidence of an incipient second wave is mounting. Moreover, the British and European economies are in the midst of dire recessions.

Hope remains that a vaccine may be ready in the medium term, which was buoyed when Russian President Vladimir Putin announced his country’s new ‘Sputnik’, despite having only been tested on a small scale and being a minimum of 6 months away from being widely available. Yet, while Putin and Russia were getting headlines, the truth is that their proposed vaccine is just one of several that one hopes and pretty much expects to be available some time in Q1 2021. Between now and then, we can only pray that a second wave can be either mitigated or avoided altogether.

July saw nearly 2 million new COVID-19 cases and over 27,000 deaths in the U.S, numbers that are scandalous by any standard. Yes, despite the clear and obvious reason for pessimism, there are also reasons to be more optimistic: the rate of contagion seems to be slowing and we expect new legislation to help stimulate the US economy that we believe will include more free cash to all citizens, increased fiscal spending, more central bank corporate bond purchasing and quantitative easing. Interest rates will remain at their historic lows and will continue to encourage investors to favor equities in developed and emerging markets over lower interest bonds, all of which should continue to increase trading volumes and push stocks higher and higher.

July 21st saw new stimulus measures in Europe designed to continue the economic revival. The European Commission created a €750 billion recovery fund, made up of grants and loans, to be distributed amongst the most impacted countries and sectors. This ambitious initiative will make the European Union a major borrower in global financial markets. July also saw Japan follow suit through Prime Minister Shinzō Abe’s $2.2 trillion stimulus plan.  These actions plus similar ones in the United States should be able to foster a global economic rebound in the second half of 2020, which we believe will continue into and throughout 2021.

Our optimism was misguided in our June Market Commentary where we said that COVID-19 infections would abate in July, as they rose both at home and through the Americas, Middle East, India and Africa. Moreover, critical mass is gathering in Europe, Asia and Australia. Indeed, even New Zealand – who went over 100 days without a single infection – has reported new cases. Despite this, we have seen lower death rates as the medical community has come to grips with how to manage COVID-19 – something that is greatly assisted by Gilead’s Remdesivir – as well as better protection for senior citizens, a younger median age of those infected, signs of herd immunity in places like the poorer sections of Mumbai and New Delhi and improved facemask usage and social distancing. However, what will happen this winter and whether all the world’s experience in managing the pandemic will be enough to avoid a dreaded and devastating second wave is a disconcerting question mark.

The clear winners in global stock market are the so-called magnificent 7: Amazon, Apple, Facebook, Google, Microsoft, Netflix and Tesla who have led the way with the appreciation of their stocks. Generally speaking, tech, consumer discretionary, communication services, biotechnology, pharmaceuticals and health care are performing well on the back of the medical and social requirements posed on humanity by COVID-19.  In both the above cases, we have a positive outlook for August and beyond as the pandemic is not going anywhere in the short-term. Moreover, one wonders how our social and communication inclinations have changed during this period and how virtual communication and remote work and study may become the new norm and how tech/communications equities may become the big winners in the post-COVID-19 world. Of course, it goes without saying that the business or businesses that create an accurate vaccine shall do very well, as will the full range of businesses whose products assist in production and dissemination. We remain keen observers of how unemployment figures, corporate earning and other economic indicators will take shape in the coming months as well as the direction in which they will push markets. We believe we are still seeing enough good news for markets to continue a slow rise via a second round of stimulus, which may indicate that the global recovery will remain on track. We are hopeful that the virus’ spread will slow down and that at least one of the vaccines being tested will save the day. In the meantime, we hope that all citizens will help to hasten the elimination of the virus by wearing a mask so we can get back to business before the emergence of a vaccine.

Disclosures

This material is prepared by Henry James International Management and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this material are obtained from proprietary and nonproprietary sources believed by Henry James International Management, to be reliable, are not necessarily comprehensive and are not guaranteed as to accuracy. No warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions is accepted by Henry James International Management, its officers, employees or agents. This material is based on information as of the specified date and may be stale thereafter. We have no obligation to tell you when information herein may change. Reliance upon information in this material is at the sole discretion of the reader. Certain information contained herein may constitute forward-looking statements. Estimates of future performance are based on assumptions that may not be realized.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Any indices chosen by Henry James International Management to measure performance are representative of broad asset classes. Henry James International Management retains the right to change representative indices at any time.

Henry James International Management and its representatives do not provide legal or tax advice. Each client should always consult his/her personal tax and/or legal advisor for information concerning his/her individual situation.

Henry James International Management June Market Commentary

In last month’s market commentary we indicated that the global economy was beginning to rebound nicely and that we expected that the communications, technology, software and pharmaceutical industries to drive the markets upward and catalyze a global rebound. While this has been true, there is one item we missed: the spark of growth facilitated by the humble and inexplicably polemical facemask. It is not the production of facemasks that is important; rather that the countries whose citizens more steadfastly wear them that are seeing abating infections who are subsequently in a position revitalize their economies through production and consumption.

The diffusion of the virus in the South of the United States (US) highlights the problem: when people came out of lockdown and were not required to wear facemasks, the virus thrived and set the record number for weekly cases in the US. Yet, despite the many reason for pessimism in the US, we still expect a global economic rebound in the second half of 2020 (both here and globally), which we believe will continue into and through 2021. We also persist in our belief that COVID-19 infections and deaths will diminish substantially due to better protection of senior citizens, Gilead’s Remdesivir, a younger median age of those being infected and the improved usage of facemasks and practice of social distancing. It seems that until a vaccine is developed the world will be coerced into coexisting with COVID-19, something that may be quite feasible (e.g. Japan who have experienced comparatively minor infection and deaths despite never having been in lockdown) through the fastidious use of facemasks, social distancing, good hygiene and better medical intervention.

Government and central bank spending remain at the forefront of the global economy’s rebound. Massive global government stimulus – including free cash to both rich and poor citizens, alike – fiscal spending, central banks buying corporate bonds and quantitative easing are all having their positive, intended effect. We believe that interest rates will remain at historical lows and – as we suggested last month – this will continue to encourage investors to favor equities in developed and emerging markets over lower interest bonds, with increased trading volumes continuing to push stocks higher. Moreover, good market returns have served to make investors more optimistic and less afraid of the pandemic.

Significant parts of the globe that were once being decimated by COVID-19 are seeing infections and deaths from the virus sink to very low levels; moreover, they are able to maintain their R-value below 1 through a potpourri of testing, tracking and social isolation (not to mention the assiduous use of facemasks). As a result Europe’s Schengen Area have officially restarted both economic activity and manufacturing while other parts of the globe – including parts of the US, the Middle East and Africa – have been left spinning their wheels due to surges of COVID-19 infection. The outbreak in the US Southern States is a warning that reopening too early, forsaking the protection offered by a facemask and not maintaining social distancing make the dreaded second wave a not possibility, but a veritable guarantee.

Looking into the future, we continue to have a positive outlook for companies that produce the technology to deliver goods and services to consumers and businesses internationally. Similarly, we see strong opportunities in in companies that provide the means for people to work and study remotely from multiple locations. We continue to see increased potential in the pharmaceutical and biotech industries as efforts to combat the pandemic continue to increase.  Lastly, we also have our eye on businesses related to 5G and its use in technology, especially cloud data storage.  We are also encouraged to see that many of the companies that comprise the major US indices are benefiting from increased forward corporate revenues, earnings and margins. We are seeing enough good news which we believe may indicate that the recovery is set to stay on track. We are hopeful that the world’s governments and central banks persist in the effective course they set for themselves, that the virus continues to stay under control across the globe and that people help power the global economic recovery through the simple act of doing their part to combat the spread of COVID-19.

Disclosures

This material is prepared by Henry James International Management and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this material are obtained from proprietary and nonproprietary sources believed by Henry James International Management, to be reliable, are not necessarily comprehensive and are not guaranteed as to accuracy. No warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions is accepted by Henry James International Management, its officers, employees or agents. This material is based on information as of the specified date and may be stale thereafter. We have no obligation to tell you when information herein may change. Reliance upon information in this material is at the sole discretion of the reader. Certain information contained herein may constitute forward-looking statements. Estimates of future performance are based on assumptions that may not be realized.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Any indices chosen by Henry James International Management to measure performance are representative of broad asset classes. Henry James International Management retains the right to change representative indices at any time.

Henry James International Management and its representatives do not provide legal or tax advice. Each client should always consult his/her personal tax and/or legal advisor for information concerning his/her individual situation.

Henry James International Management May Market Commentary

In last month’s market commentary we said that we expected a global economic rebound in the second half of 2020, which would continue into and through 2021; that COVID-19 infections and deaths would diminish substantially and that its presence would be all but extinguished in Asia; and that global manufacturing would start to pick up again (particularly in Asia).

At this point, we’ve seen indications that the global economy is beginning to rebound nicely. Massive global government stimulus, including free cash to citizens, fiscal spending, the Fed and other central banks around the world buying corporate bonds and quantitative easing are all having a positive impact on the global economy. Interest rates remain at historical lows and remind investors of former United Kingdom Prime Minister Margaret Thatcher’s famous 1980s quote: ’there are no alternatives’. Consequently, investors are continuing to favor equities in developed markets over low interest bonds with increased trading volume pushing stocks higher.

At this point we see certain parts of the world slowing the spread of the virus and getting back to work. By the end of May, the COVID-19 infection and death rates in Europe’s Schengen Area was becoming substantially lower than the worrying and desperate heights experienced in April. As a result, much of the area’s economic activity and manufacturing are resuming. Conversely, other parts of the globe are seeing new surges of infection, such as in Brazil, where new cases are at worrying levels.

In North America and the United Kingdom (UK) the virus seems to be just about where it was last month in Europe and Asia: at a point that is far from ideal but which some believe is showing signs of abating. However, we believe that North America and the UK may be opening up again a bit too early which may make the dreaded second wave a distinct possibility. Such an outcome would be catastrophic for the global economy that relies on their output. However, to be more optimistic, we believe that institutional investors are looking well past the economic destruction brought on by COVID-19 and to a return to economic prosperity in the not-too-distant future.

We believe that investors anticipating economic recovery has largely driven the US stock market up over 40% from its COVID-19 bottom and that it is helping to power the ‘round trip journey’ made by the S&P 500; i.e. returning to pre-pandemic levels as it did on June 8, 2020. Of course, it is not just market optimism helping international equities flourish. Along with the massive support by provided by the world’s central banks, COVID-19 infection rates are going down nearly everywhere excluding South America and a very positive US jobs report has served to bolster investor optimism. We are encouraged that the June stock market surge has been largely driven by industrial and energy stocks, which shows that markets are reacting to increased demand as reflected by the increase in international movement of goods and increasing global manufacturing.

Looking into the future, we continue to have a positive outlook for companies that are able to deliver goods and services to consumers and businesses internationally. We see increased potential in the pharmaceutical and biotech industries as efforts to combat the pandemic continues to increase.  Businesses related to 5G and the use of 5G services and technology companies focused on communications services including cloud data storage are also likely to find favor with our portfolio managers.  Additionally, if the recovery stays on track more investment opportunities will likely emerge in the energy, industrials and financial sectors. We believe that in many ways markets have shaken off the trauma of COVID-19 and as the effects of the pandemic recede the global economy will continue to regain its footing.

Disclosures

This material is prepared by Henry James International Management and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this material are obtained from proprietary and nonproprietary sources believed by Henry James International Management, to be reliable, are not necessarily comprehensive and are not guaranteed as to accuracy. No warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions is accepted by Henry James International Management, its officers, employees or agents. This material is based on information as of the specified date and may be stale thereafter. We have no obligation to tell you when information herein may change. Reliance upon information in this material is at the sole discretion of the reader. Certain information contained herein may constitute forward-looking statements. Estimates of future performance are based on assumptions that may not be realized.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Any indices chosen by Henry James International Management to measure performance are representative of broad asset classes. Henry James International Management retains the right to change representative indices at any time.

Henry James International Management and its representatives do not provide legal or tax advice. Each client should always consult his/her personal tax and/or legal advisor for information concerning his/her individual situation.

Henry James International Management April Market Commentary

Last month we stated that – despite the catastrophic way in which the COVID-19 pandemic has threated and affected life and caused the global economy come to a veritable halt – we believed a sliver of light was becoming faintly visible at the end of the tunnel. While the situation in which Earth’s inhabitants find themselves remains absolutely dire and no less serious today than it was a month ago, we feel that our prediction has largely come true, albeit with a caveat: though the light is visible it remains distant and faint. The month of April displayed evidence of “green shoots” as most major indices posted positive returns. Indeed, the broad based MSCI EAFE index returned 6.29% after posting negative returns in each of the preceding 3 months.

From the perspective offered from our isolated home desks, we are expecting very weak economic activity for the second quarter with all major countries having economic contraction and increased un-employment for 2020’s second quarter. Indeed, the economic plunge in this quarter will likely set records, the likes of which we haven’t seen since the Great Depression. And yet, there is hope. Provided that COVID-19 does not see a pernicious second wave, we expect an economic rebound in the 3rd and 4th quarters and continuing into 2021. With massive stimulus progams in place globally, alongside historically low interest rates – not to mention the price of energy and fuel being at all time lows, which essentially offers the positive impact of a global “tax cut” – there are good reasons to be optimistic for the second half of 2020.

While we seem very far away from life as we knew it, social distancing has worked and is working. Throughout the world the hallowed ‘flattening of the COVID-19 curve’ has been realized: in Asia, Europe and now in the United States. Consequently countries like Belgium, Germany, Italy and Portugal have started the slow reboot of the European Union through the opening of some retail businesses and slightly relaxed rules about leaving one’s home. Schools have even re-opened in Germany (with strict sanitation and social distancing protocols, of course). While it cannot be denied that there are fears of a second wave brewing in Germany and beyond due to the relaxing of social distancing measures, the world seems to be inching in the right direction.

As social distancing is relaxed and people are successfully able to get back to work, the economic vacuum caused by COVID-19 will abate. We believe there will be a resurgence of consumer demand pushing factories to ramp up production in order to restock depleted inventories as social distancing restrictions are lifted. Consumer demand is increasing in the developed markets and we believe that businesses will accelerate efforts to re-open as soon as possible given that their very existence depends on it.

In the United States COVID-19 testing is ramping up across the entire country. Here in New York City one is able to get tested for $50 at an Urgent Care Center; of course, while this sum of money may be ‘chicken feed’ to some, to others it will be prohibitive, which presents a range of problematic health and social issues. Nonetheless, we are optimistic that the increased testing, along with contact tracing will stop the growth of large infection clusters.

We expect that Asia and the Pacific Rim countries will lead the way in economic growth in the second and third quarters and that their markets and global investors may mutually benefit from one another. Despite fears of a brewing second wave in China, Japan and South Korea, we are hopeful that their manufacturing will continue to ramp up through the next few months. In early May South Korean Prime Minister Chung Sye-kyun announced that his government would allow business activity to resume in a phased fashion and that gatherings and events could take place provided they follow strict disinfection and social distancing guidelines. This will include schools, parks, museums and even the re-start of the Korean professional baseball league (unfortunately in front of empty stands).

Looking to the future, we have a positive outlook for the following sectors: companies that are able to offer consumers and corporations the ability to sell, package and deliver internationally; the pharmaceutical sector and its companies who not only provide services to fight COVID-19 but also those who fight cancer and a full range of diseases; communication services including streaming, telephone, video games and video conferencing; and technology companies that provide the backbone of communications services including cloud data storage.

In our view, the light at the end of the tunnel is visible, and its vibrancy and radiance will only increase as we continue to turn the tide in terms of our global health battle with COVID-19. We believe markets will begin to recover and there are several economic sectors poised to make solid gains as the recovery from the pandemic continues.

Disclosures

This material is prepared by Henry James International Management and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this material are obtained from proprietary and nonproprietary sources believed by Henry James International Management, to be reliable, are not necessarily comprehensive and are not guaranteed as to accuracy. No warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions is accepted by Henry James International Management, its officers, employees or agents. This material is based on information as of the specified date and may be stale thereafter. We have no obligation to tell you when information herein may change. Reliance upon information in this material is at the sole discretion of the reader. Certain information contained herein may constitute forward-looking statements. Estimates of future performance are based on assumptions that may not be realized.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Any indices chosen by Henry James International Management to measure performance are representative of broad asset classes. Henry James International Management retains the right to change representative indices at any time.

Henry James International Management and its representatives do not provide legal or tax advice. Each client should always consult his/her personal tax and/or legal advisor for information concerning his/her individual situation.

Henry James International Management March 2020 Market Commentary

There is only one story in town: COVID-19. While these are unprecedented and extremely worrying times from a range of perspectives, including public health, health infrastructure, medical/pharmaceutical supplies, mass unemployment, economic contraction and falling equities prices and bond yields, we are optimistic that light is becoming visible at the end of this harrowing tunnel.

While it is obvious that global markets have been oppressed by this deadly pandemic, the forces that are affecting their movements are a bit of a mixed bag. On one end we have raging fear, Western nations charging towards what may be approaching the first wave of their COVID-19 infection’s apex, as well as the reality and implications of having been in social isolation for the past month and the likelihood of it persisting for a while longer. On the other end, we see improved and more stable market liquidity, global governmental stimulus packages along with evidence that South East Asia is approaching a place from which it may be able to resume some semblance of normality (economic and otherwise).

Despite COVID-19 having caused an alarming number of deaths in Southern Europe (Italy and Spain) as well as carving out a path of destruction throughout the rest of Europe, America and elsewhere, we are feeling more optimistic in the short term. Firstly, it appears that social distancing is beginning to bear fruit in Southern Europe, where infection numbers and deaths are decreasing for the first time in a matter of weeks (of course, decreasing does not mean infection and death figures are still are not really high). Moreover, on April 5, 2020 New York Governor Andrew Cuomo revealed that in the previous 24 hours new hospitalizations had fallen by 50%. Despite Cuomo wisely cautioning against wishful thinking that this evidence suggests that the crisis is beginning to plateau in New York State, as good news is in short supply these days, we will take it with open arms.

The fuel for our optimism is driven by the dramatic increase in COVID-19 testing after a disastrous start by the United States government. According to US government officials, labs are processing almost 100,000 tests daily and that over 1.4 million test have so far been administered. Abbott Labs delivered more good news as its new quick test could be used very soon to clear first responders, medical personnel and other key workers.

South East Asia is apparently about to get back to work – perhaps not as one envisaged ‘work’ pre-COVID-19 but ‘work’ nonetheless – as China, Japan and South Korea have begun ramping up manufacturing. A stunning example of this – which would have been unthinkable a matter of weeks ago – is Japanese automaker Honda Motor Co. along with rival Nissan Motor Co. both resuming partial production in Wuhan, the city in which the pandemic first began.

Looking to the future we have a positive outlook for the following sectors: pharmaceuticals that provide services to fight COVID-19 along with the revolutionary technology that will help fight cancer and other diseases; communication services including streaming, telephone, video games, video conferencing and more; and companies that provide the technology for logistics and cloud data storage. In terms of retailers, CVS and Walgreens appear to have a place in the future recovery and government expenditures will help major industrial companies stay afloat. Lastly, the low cost of energy, which many will view as a drawback, will help to power a global recovery when the time is right.

Disclosures

This material is prepared by Henry James International Management and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this material are obtained from proprietary and nonproprietary sources believed by Henry James International Management, to be reliable, are not necessarily comprehensive and are not guaranteed as to accuracy. No warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions is accepted by Henry James International Management, its officers, employees or agents. This material is based on information as of the specified date and may be stale thereafter. We have no obligation to tell you when information herein may change. Reliance upon information in this material is at the sole discretion of the reader. Certain information contained herein may constitute forward-looking statements. Estimates of future performance are based on assumptions that may not be realized.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Any indices chosen by Henry James International Management to measure performance are representative of broad asset classes. Henry James International Management retains the right to change representative indices at any time.

Henry James International Management and its’ representatives do not provide legal or tax advice. Each client should always consult his/her personal tax and/or legal advisor for information concerning his/her individual situation.

Henry James International Management February 2020 Market Commentary

Market Overview

 Since last month’s entry, coronavirus – or for the more technical among us, COVID-19 – has gone from theoretically worrying to officially scary, life-changing and economically devastating. A short time ago coronavirus was mostly China’s problem and was a situation that we in the West looked at with genuine worry and sympathy. Now, no country is immune from the devastating impact of this virus on virtually every aspect of life. The effect of the coronavirus on China can be seen as a harbinger of the impacts of the virus on other societies and economies. Initially the West was seemingly mostly concerned about the economic effects of a disruption to supply chains and was reluctant to take precautions.  That has all changed as virtually every country in the world is taking extraordinary steps to abate the spread of this pandemic.

Until the last week of February most investors were all braced for a significant, but not necessarily ruinous, coronavirus impact. That all changed on February 21, 2020 when Italy’s very manageable and seemingly stable total of 3 coronavirus infections jumped to 20. The next day the number became 70 and a week later 1,128, including some fatalities. Markets took note of coronavirus making itself at home comfortably within a Western nation and investor panic ensued to deliver the worst week for stocks since the 2008 financial crisis, which saw the MSCI EAFE index tumble by -8.00% in February, the MSCI Emerging Markets index by -4.17% and the MSCI World ex USA Small Cap index plunge by  -8.74%. There has been little improvement since the final week of February; the current situation is far worse and several nations are seeing the virus run rampant through their populations. Moreover, economies are paralyzed and markets have been in veritable free fall.

Without minimizing how dangerous coronavirus is for both the elderly, infirm and possibly others – the death rate is generally believed to be less than 1%. Indeed, for the vast majority of people it is even less than that. What the virus lacks in deadliness to people, it more than makes up for in its lethalness the global economy. COVID-19 has the power to freeze the capitalism that drives global growth: slowing both production and consumption. As we have seen in China, Italy and now across the rest of the world, to prevent the spread of the virus, places of work shut down and whole cities and provinces are quarantined. While plenty of jobs in the modern economy allow for employees to work remotely at home, not only are many businesses not equipped for this kind of work, factories and the manufacturing sector cannot do so by their very nature. As was the case in China, factory closures suspend both product and component manufacturing, which not only stifles the quantities of items for consumers to purchase locally (and affects business cash flow), all global businesses whose supply chains run through China (and elsewhere) are starved for the items or parts required to sell and/or complete their finished products, respectively. Car manufacturing in South Korea, Europe, United States and beyond, for example, have been massively impacted by the supply chain disruption in China; many have already suspended their own production or are poised to do so.

On the consumer side, people staying indoors due to quarantine, self-isolation or fear of contracting coronavirus have seen the amount they spend in the economy plummet; indeed, in recent days consumer spending is at unprecedented lows. Simply put, we have not been spending in the retail sector, on entertainment, at restaurants or travel, etc. Moreover, doing so is scarcely possible since many countries have coerced such businesses to close. These sectors are huge parts of the global economy and not only does it mean that big businesses are suffering and small businesses risk bankruptcy, it also threatens millions upon millions of jobs that supply people with cash to afford their lives and to spend in the local economy. In short, people are not only refraining from buying because coronavirus is keeping them away from shops, restaurants, movie theatres; etc. – they also are cash deprived or soon will be.

The knock on effect is massive, and when production and consumption have been suffocated, it is down to banks and governments to step up to the plate, but the question is what can they really do when coronavirus has literally taken off the wheels of capitalism? Banks can give loans to businesses struggling to pay their bills; they can also let mortgage holders miss a couple of payments, amongst other items. However, as we witnessed in 2008, even the biggest banks are mere mortals and have limits to what they can do. Indeed, even governments and central banks have limits, not just because their pockets are not infinitely deep but also because policy changes – dramatic though they may be – cannot always have the desired effect. For example, on March 3, 2020 when the Federal Reserve slashed interest rates by 50 basis points – not to mention March 15th’s slashing of an entire percentage point – markets were left unsatisfied and continued in their volatile downward trend. Indeed, the face value for this seems quite obvious in hindsight: the reasons consumers are not spending money in shops is not because of expensive loans or debts, but the fact that they are afraid of contracting coronavirus. Ultimately, economies must pay their own way, and while government policy can help banks loosen their purse strings, delay or abolish tax payments and help to lubricate the wheels of capitalism through financial packages, it is down to whether production and consumption can persist through this pandemic and out-muscle and outlast the virus.

Investment Outlook

James O’Leary, CFA, Chief Investment Officer and Senior Portfolio Manager at Henry James International Management, believes that the impact of the coronavirus pandemic will catapult us into a global recession. ‘The major global sell off that began at the end of February indicates that as coronavirus spreads throughout the planet that markets will continue to panic and result in a global recession.’ He continued: ‘Hopefully everything will slow down through a coordinated global effort and prevent – or limit the impact of – this near inevitability.’ O’Leary suggests reasonable expectations include a 1% reduction in global economic output (from 3% to 2%) citing that the world’s second largest economy China has already been devastated by coronavirus and the reality that the pandemic is poised to smite the rest of the world’s economies in no time at all.

As readers will recall, as we transitioned from 2019 to 2020, despite being bullish, we were particularly aware of the full range of snags and snares desperate to trip up a roaring global economy (of course, who would have predicted a virus would have been the inevitable tripwire?). 2019 stiff-armed Brexit and President Trump’s tariff wars, including the US-China trade dispute, along with plenty of other headwinds. According to O’Leary, in a world without coronavirus the 2020 economy may have simply ploughed through these items to deliver returns for investors, as it did in 2019; however, in our current situation he believes that they will only add to the pain. He said, ‘Brexit and the US trade disputes with China will continue to have an effect on the global economy and coronavirus will only magnify their effects and make them more painful.’ According to O’Leary, a silver lining is that he believes that coronavirus has taken Trump weaponizing tariffs off the menu until at least after the November General Election, saying, ‘Trump needs a strong economy to be re-elected.’

While O’Leary does value globalism, he believes the coronavirus has exposed the fatal flaw of the status quo; i.e. a lack of diversified import sources. ‘It has negatively effected global supply chains as China is a major provider of parts that go into many finished products that are manufactured elsewhere, like in the automobile industry for example.’ He continued: ‘Since these parts are not available, manufacturers in other countries, like in South Korea, for instance, have to stop production lines altogether.’ In short, the undiversified supply chains that were arguably put in place to turbo boost capitalism, have become its undoing.

Of course, the implications are far more significant than negatively impacting the economic cycle: how does an undiversified supply chain threaten the supply of the drugs and medical equipment needed to maintain and manage our national health in normal times? In 2018, 88% of active pharmaceutical ingredients came from overseas, with around 14% of that sum produced in China. In short, from a pharmaceutical perspective, the US is not self-sufficient and relies on its supply chains, so what happens when there is a pandemic and our trading partners are either unable to continue supplying us with the necessary drug ingredients, or they simply become unwilling to part with their stash to instead look after their own populations? ‘Evidentially the USA is dependent upon China for some of the component ingredients that are needed to make drugs that are used to fight the coronavirus,’ O’Leary said. Of course, one hopes and expects that the experts will figure out how to overcome these present difficulties; however, it is clear that coronavirus has revealed that undiversified supply chains are not the best way forward on any front.

This brings us to the faint silver lining of the dark cloud that is coronavirus: will this hasten the creation of diversified supply chains? We think so. ‘We think that a decoupling of the US and Chinese economies will be a good thing for both countries and will mean US relying less on China for rare metals, pharmaceuticals and a range of other items.’ Of course, one may say that the US-China trade war was rather inadvertently a blessing in disguise in so far that it got businesses expanding their supply chains outside of China to avoid tariffs. Despite this, the US and Chinese economies are still deeply interconnected; indeed, the trade deal Trump has been working on presumably would strengthen, if rebalance, the relationship between these two economic juggernauts. O’Leary doubts that any business will want to continue with the existing supply chain status quo when coronavirus calms down; on the contrary, he believes that companies will be proactively diversifying their production and parts sourcing throughout the world. O’Leary said, ‘The impact of a diversified supply chain will make business production more complicated and likely more expensive, but it will protect it.’

In conclusion, we think it is likely that markets will be forced to endure more pain in the coming months and that coronavirus will have ruined any hope of 2020 being a bull year. However, we believe that it is reasonable to expect markets to find a bottom and begin to recover. This is not the time to panic, financially speaking – history has shown that even the most violent negative market spirals are often followed by significant gains. We believe in maintaining a portfolio of high quality stocks to weather the storm and remain in position to take full advantage of the inevitable recovery. Despite sucker punching international markets and creating a global health emergency, we believe the coronavirus will lose much of its sting by the end of 2020’s second quarter. Hopefully, by the middle of 2021 the economic wounds wrought by the coronavirus pandemic will be nearly or completely healed.

Disclosures

This material is prepared by Henry James International Management and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this material are obtained from proprietary and nonproprietary sources believed by Henry James International Management, to be reliable, are not necessarily comprehensive and are not guaranteed as to accuracy. No warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions is accepted by Henry James International Management, its officers, employees or agents. This material is based on information as of the specified date and may be stale thereafter. We have no obligation to tell you when information herein may change. Reliance upon information in this material is at the sole discretion of the reader. Certain information contained herein may constitute forward-looking statements. Estimates of future performance are based on assumptions that may not be realized.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Any indices chosen by Henry James International Management to measure performance are representative of broad asset classes. Henry James International Management retains the right to change representative indices at any time.

Henry James International Management and its representatives do not provide legal or tax advice. Each client should always consult his/her personal tax and/or legal advisor for information concerning his/her individual situation.