Global Investment Commentary

For Professional Clients only. Not for distribution to or to be relied upon by Retail Clients.

August 2020

Market Round Up
While advances were at a more moderate pace than those of the second quarter, equity markets remained positive during August, pointing towards continued growth for Q3. Economic forecasts indicate a slowing of pace into Q4. Meanwhile, the challenges faced by both businesses and society in general have not dented investors’ enthusiasm, which seems to have been lifted by a better than expected second-quarter earnings season and by the potential for a viable COVID-19 vaccine in the coming months.

In this context, risk assets continued to rally. Over the month, the MSCI Emerging Markets Index rose by 2.20% and the MSCI World (Developed Markets) Index rose by 6.31%. Global corporate bonds and global government bonds fell by 1.14% and 0.38% over the month, respectively.

Performance of major equity markets during August 2020:

UK
Concerns about an abrupt halt to the recovery, together with stalling Brexit negotiations, have weighed on investors’ appetite for UK assets. Nevertheless, the FTSE 100 index still gained 1.75% in August, although it lagged the recovery in most other regions.

Consumption was strong in July, with retail sales rising 3.6% over the month, climbing above pre-crisis levels. The unemployment rate has remained low so far despite the substantial decline in economic activity. This is thanks to the furlough scheme which has been used by over nine million workers. However, with surveys showing that many workers are still furloughed, the unemployment rate could rise much higher, with the scheme set to end in October and the government so far ruling out an extension.

US
The presidential campaign has continued to gather steam with the nomination of Kamala Harris as Joe Biden’s running mate and the official nomination of Donald Trump as the Republican nominee. So far, the most recent polls continue to point to a victory for the Democrats.

On the economic front, data releases continued to point to solid, though moderating growth in August. However, longer term economic indicators, such as manufacturing surveys, fell short of expectations. The housing market remained the bright spot for the US economy, with housing starts and existing home sales both beating expectations.

In terms of monetary policy, the Fed announced a shift to average inflation targeting, confirming that monetary policy will remain supportive for the foreseeable future.

August also marked the end of the second-quarter earnings season, which surprised on the upside relative to weak expectations. Unsurprisingly, the healthcare and information technology sectors were particularly strong, while the energy sector’s earnings were hit the most.

Europe
European risk assets continued to benefit from the European Council agreement in July to establish a €750 billion European Union (EU) recovery fund, which has reassured investors about the future of the EU. European equity and bond markets registered positive investor flows in July and August. In this context the euro strengthened versus the dollar. In credit markets European high yield outperformed other bonds in August, up 1.46%. However, in equity markets, even though the MSCI Europe ex-UK index posted strong returns in August (+3.12%), it still lagged the US market, which has been boosted by the performance of its large technology stocks.

Emerging Markets & Asia
China continued to draw most of the attention. The manufacturing PMI for July improved, indicating continued expansion. July economic data generally confirmed that the Chinese economy was continuing to recover, albeit at a slightly more moderate pace. While industrial production and fixed investment picked up in China in July, retail sales came in weaker than expected. Unlike in developed market economies, consumption has so far lagged production during this recovery, which is probably due to the lack of financial support for households from the Chinese Government. Chinese equities increased 2.59% over the month.

Conclusion
The initial swift and sizeable COVID-19 policy response from central banks and governments has managed to provide a cushion against the economic shock and lift markets, as policymakers aimed to navigate nations through these difficult times. However, indications of a second wave in Europe are a reminder that COVID-19 is still with us until a vaccine is widely available and economies will likely remain constrained by measures aimed at slowing the spread of the virus and supporting consumer incomes and businesses.

Given the uncertainty around the outlook for the virus and a vaccine we continue to believe it makes sense to aim for balanced and well-diversified portfolios.

Finding the optimum position between protecting investors from a potential retrace or harnessing growth on the upside is a constant challenge. An attentive eye and the ability to act with agility will be key to managing portfolios in order to achieve their respective investment objectives and risk profiles.

Performance of major equity markets Year to Date (2020):

Risk Warnings
The following is a summary only of some key items in the Prospectus. Capital is at risk. Investors in Protected Cell Company (PCC) must have the financial expertise and willingness to accept the risks inherent in this investment.
Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.
The Master funds will be exposed to stock markets. Stock market prices can move irrationally and be affected unpredictably by diverse factors, including political and economic events.
It should be appreciated that the value of Shares is not guaranteed and may go down as well as up and that investors may not receive, on redemption of their Shares, the amount that they originally invested.
Investment in the Company should only be undertaken as part of a diversified investment portfolio. Investment in the Shares should be viewed as a medium to long term investment. Shares may not be redeemed otherwise than on any Dealing Day. There will not be any secondary market in the shares of the Company.

Regulatory Information
This material is for distribution to professional clients only and should not be distributed to or relied upon by any other persons. The Cells referred to are a cell of Marlborough International Fund PCC Limited (the ‘Company’), a protected cell company incorporated in Guernsey and authorised as a Class B Collective Investment Scheme under the terms of the Protection of Investors (Bailiwick of Guernsey) law, 1987, as amended. Investment may only be made on the basis of the current Prospectus, this can be found on the website www.marlboroughinternational.gg. Marlborough International Management Limited is incorporated in Guernsey. Registration No. 27895. Regulated by the Guernsey Financial Services Commission. It is not protected by any investor compensation scheme.
Licensed under The Protection of Investors (Bailiwick of Guernsey) Law 1987. Guernsey Office: Town Mills South, La Rue du Pre, St Peter Port, Guernsey GY1 3HZ. Tel: +44(0)1204 589336.