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.


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