Henry James International Management October 2020 Market Commentary

For the second consecutive month we have seen negative returns in the MSCI EAFE index, down -3.98% in October. Of course, no one is surprised by this given the ways in which the second COVID-19 wave has renewed its devastations on economies and businesses and people who participate in them. What was not anticipated was the outcome of the US Presidential Elections and the subsequent fractious (non)transition period. Indeed, of perhaps greater importance is that we are on the threshold of having not one but two COVID-19 vaccines ready for use before the year’s end; and it seems a certainty that they will be available for widespread uptake in 2021.

October’s top performing equities were on the value side of the index with utilities, industrials, materials and financials leading the way. Conversely, we continued to see a pull back in the consumer discretionary, communication services, information technology and energy sectors through the October 30, 2020 market low.  Our stock selection in the consumer durables and health technology sectors improved portfolio performance in October.

Joe Biden’s projected presidential election victory has been embraced by markets at home and around the world. We suspect this is less to do with any partisanship and more to do with a much-desired sense of certainty, which markets particularly enjoy. We believe that a Biden victory would be rendered even sweeter for investors if the two outstanding undecided Georgia Senate seats persist as Republican as it would foster a situation in which our Constitution’s celebrated ‘checks and balances’ would come to the fore and make it difficult for Washington to do anything overly bold, controversial and unsettling in terms of tax code or spending policy changes. In short, we believe economies prefer to be un-obstructed in their dogged pursuit of growth and a government in gridlock achieves just that. Despite this, we anticipate a Biden Presidency will successfully negotiate (or more likely Senate Majority Leader Mitch McConnell and Speaker of the House Nancy Pelosi) a bi-partisan COVID-19 economic stimulus package. We also expect the US Federal Reserve to be playing the role of spotter to make sure there is good liquidity to continue to aid the economic recovery.

Beyond our shores, the economies that did the best in October and who have been generally performing during the pandemic are the ones who have been able to contain the virus through a range of measures that include throwing civil liberties to the wind, individuals being responsible (i.e. wearing a facemask and social distancing) and sometimes a combination thereof. This includes China, Taiwan, Japan, South Korea and Vietnam. In the West, by contrast, where civil liberties are the end all, be all (we think with extremely good reason) and citizens are less primed to make the necessary sacrifices in unison to control COVID-19, we have seen a crushing second wave. While deaths have generally been less than what we saw during the first wave (at least as a percentage of infections), infections have reached heights that would have seemed an implausible worst-case scenario a matter of months ago. Consequently several European nations including France and Britain are either in full lockdown or in the midst of severe restrictions, which, while possibly necessary to control COVID-19, is absolutely punishing for economies. While some may have been a tad slow off the mark, European governments and central banks are responding to keep their economies afloat. Moreover, December will see the European Central Bank meet to discuss extending and expanding their pandemic policy packages.

And yet, while it seems that we were heading nowhere rather quickly in terms of managing COVID-19 and the ways to keep economies chugging along, on November 9th Pfizer/BioNTech announced the development of a vaccine with 90% effectiveness. On November 16th, Moderna followed suit with a vaccine with 95% effectiveness. The FDA (and the equivalent in other countries) are expected to authorize the vaccines by the beginning of December, which means that it is not only possible but actually likely that vaccines will be distributed and injected in 2020. There are several more vaccine candidates that are expected to announce their own successful trials in due course, which means that the next pressing issue becomes production and dissemination. The developed world requires at least 1 billion doses, and despite the likelihood that we will have a range of vaccines from which to choose, it is impossible to imagine that achieving such a quantity will be a bump-free experience. Moreover, less wealthy countries will be at the back of the line when it comes to vaccinating their citizens, whose numbers far exceed the developed world’s already daunting 1 billion, which will likely present a production and distribution headache as a best case scenario. Furthermore, there is the anti-vaxxer movement that includes the COVID-19 iteration that bizarrely purports that a vaccine would entail injecting a Bill Gates-designed microchip directly into the blood stream to monitor our daily movements and far more. Despite being farcically far-fetched, the fact is that we live in an era, vis-à-vis QAnon, in which pernicious myth can very easily masquerade as established fact. And yet, we are delighted that both President Donald Trump and President-elect Biden have both unequivocally endorsed getting vaccinated as soon as it is possible, which should offer significant encouragement to the full range of the American electorate.

Last month we said that markets can and do succeed regardless of which party occupies the White House. They performed under Presidents Obama and Trump; and a couple of weeks into the Biden President-elect era things are shaping up rather nicely, too. There is a reason for this: business transcends partisan politics and market performance is generally based on both current and perceived future corporate earnings. Adding to this, with power shared between Democrats and Republicans across Washington as well as the emergence of a slew of potentially world-saving COVID-19 vaccines, we believe omniscient markets are predicting better times ahead and a return to normality in 2021.

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.