Global Investment Commentary

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

March 2021

Joe Biden is heading towards the end of his first 100 days in office and has finally managed to complete the process of ratifying the appointment of his full Executive, said process having initially been delayed by the refusal of Donald Trump to concede electoral defeat.

The Biden administration have not let this hamper them and having completed a $1.9trn coronavirus stimulus package on 11th March (complete with direct payments of $1400 and an extension to a $300 per week unemployment insurance – in context this is approximately 70% of the UK’s current Gross Domestic Product (GDP)) are now moving to draw up a $3trn stimulus package focussing on infrastructure, clean energy, and education. This expenditure is slated to be funded in part by an increase in corporation tax from 21 to 28%, as well as a significant tax hike on the wealthy. Biden is rallying support by saying he is prepared to spend what it takes to keep the USA at the top. In association Janet Yellen is advancing a range of tax proposals to the rest of the world focussing on common tax rates and mechanisms to prevent global businesses from operating on your doorstep but paying little or no tax in another jurisdiction. These are actually some quite interesting thoughts and the current situation is going to need to be resolved but it remains to be seen how supporters of increased corporation tax and wealth tax such as Jeff Bezos of Amazon will actually respond when his current super-efficient tax arrangements are threatened.

Bond markets had allowed bond yields to rise quite significantly on the reasoning that contrary to central banker re-assurance QE will need to be unwound earlier and interest rates will need to rise sooner and more quickly than suggested to fight off the threat of inflation. However against this backdrop the mantra of don’t fight the Fed which has been popular with investors for decades, because not doing so appears to prevent them from losing money, has once again come to the fore. This mini-revolt by traders pricing in a more aggressive path of rate hikes has now apparently capitulated with US Treasury Bond prices rallying suggesting that bets on rate hikes are starting to be pared back whilst the Fed’s stable of speakers have been remarkably consistent and remarkably dovish in their messaging.

Around the western world traders are trying to juggle expectations for surging economic growth – JP Morgan CEO Jamie Dimon expects the economic boom will extend into 2023 – with the Fed’s (and that of other independent central bankers) stance that they will essentially look through (ignore) most of the boom as and when it comes to setting interest rates.

Out east, China is facing new sanctions again stemming from its treatment of its Uighur minority and this has “spun” over into arguments about cotton produced using forced labour entering the supply chain. This has led firms like H&M to remove Chinese produced cotton products from its shops leading to retaliation by the Chinese and the closing of H&M stores in China. This issue is likely to escalate because Xinjiang the home province of the Uighurs is the world’s largest cotton exporter producing 84% of Chinese cotton, whilst China provides 26% of the world’s cotton! China is also in the midst of an economic superpower race with the US within which, under Joe Biden, they have vowed to spend whatever it takes to maintain their position of global economic pre-eminence.

In detail the Chinese equity markets have seen a shift in leadership from conceptual technology companies (Tencent, Alibaba etc) towards fundamental value companies with strong balance sheets, market positions, and brands, and which have become mis-priced by the markets. Alongside this we have also seen more political interference in the corporate sector.

Looking more widely year to date Taiwan, Singapore, and Hong Kong have seen the strongest performance whilst China, the Philippines, Malaysia, and Indonesia have been the worst.

European equity markets have continued to show mixed performance whilst the EU struggles to manage the roll-out of an effective vaccination programme and have become fixated with blaming everyone they can, and in particular the UK and Astra Zeneca, for their woes.

Both Germany and France have now descended into new strict lockdowns with France in particular being towards the top of the daily table for newly identified cases, whilst Germany has seemingly broken ranks with the rest of Europe and is apparently negotiating with Russia for supplies of the Sputnik vaccine.

One other difficult issue is the revelation that even with the disastrous EU vaccine programme the world’s wealthiest countries are getting vaccinated twenty five times faster than poorer nations and that economies with the highest incomes have 40% of the world’s vaccinations, but just 11% of the global population. This will clearly have an impact on the pace of worldwide recovery from the pandemic with implications for both international trade and travel.

Market Round Up
Performance of major equity markets during March 2021:

March 2021Year to date01/04/2020 –
UK (FTSE 100) 5.1%5.9%23.0%
US (S&P 500)4.4%6.2%56.4%
Europe (MSCI Europe Ex UK)6.8%8.4%40.0%
Asia (MSCI Asia Pac Ex Japan)-2.9%1.6%54.8%
Japan (Nikkei 225)1.4%7.0%56.7%
China (SSE Composite)-1.9%0.9%25.1%

Source: Morningstar Direct

The UK FTSE 100 Index of leading company shares had a strong month rising by 5.1% to leave it 5.9% higher on a year to date basis, and 23% higher over the last twelve months.

The US S&P 500 Index of leading company shares also had a strong month rising by 4.4% to leave it 6.2% higher on a year to date basis, and 56.4% higher over the last twelve months.

The MSCI Europe ex UK Index of leading European company shares had an exceptional month rising by 6.8% to leave it 8.4% higher on a year to date basis, and 40% higher over the last twelve months.

The MSCI Asia Pacific ex Japan Index of leading Asian company shares fell by 2.9% to leave it 1.6% higher on a year-to-date basis, but 54.8% higher over the last twelve months.

The Nikkei 225 Index of leading Japanese company shares rose 1.4% over the month to leave it 7.0% higher on a year to date basis, and 56.7% higher over the last twelve months.

The SSE Composite Index of leading Chinese company shares fell by 1.9% over the month leaving it 0.9% lower on a year to date basis, but 25.1% higher over the last twelve months.

We are clearly at something of a water shed moment in that whilst it is the function of markets to predict recovery and reflect the impact of recovery on the economy and hence future company profitability and dividend paying ability, as the table and chart below reveals we have from a market perspective effectively sailed through the COVID pandemic and the associated economic crisis and are already viewing the warm sunny uplands of a growth recovery. What we should not overlook is the simply enormous amounts of indebtedness taken onto countries’ balance sheets around the world as a means of staving off the worst impact of the Covid crisis and that this is going to need to be repaid, or its impact silently eroded by the acceptance of a prolonged period of inflation. That is of course not ignoring that there remain many challenges to reaching the aforementioned soft sunny uplands, not least of which is defeating Covid around the world.

Performance of major equity markets over 1 year (01 Apr 2020 – 31 Mar 2021):

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 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.