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.