What Lies Ahead for Markets – Europe and Asia in focus

The much heralded ‘V’ shaped recovery looks to have happened in markets after the shock of the covid-19 pandemic in March. There is great anticipation in markets of the global economy rebounding over the next year or so.

Investors have returned to equities after the steep coronavirus induced falls in March despite still-rising global infection numbers. Great hope is being placed on finding a vaccine in 2021.

The bounce is the result of huge government and central bank stimulus measures. Borrowing costs have collapsed, which in turn has made equities much more attractive in comparison with bonds. The old maxim of ‘TINA’, There Is No Alternative to equities has rung true and is likely to remain the case for some time. Interest rates are likely to remain super-low for a long time as governments need to keep borrowing costs affordable for huge debt mountains. Whether governments will be successful at controlling global interest rates without causing inflation remains to be seen.

Markets Rebound  Strongly

The wall of money entering equity markets has pushed most equity markets, from the US to Germany and Japan, to peak levels or close to peak pre-covid-19 levels, with rises of around 50% since March. China which was first in and first out of the coronavirus health crisis has been especially hot for investment; only the UK has lagged behind, nearly 20% behind other developed markets.

Investors Look Ahead

With valuations now looking relatively full in comparison with company earnings, discrimination is becoming important. Factors influencing investors now include future success at controlling covid-19 and second waves or virus resurgence, political risk and de-globalisation as the world is fragmenting.

Continental Europe and North Asia in Focus

It is therefore unsurprising that continental Europe has been performing well in recent weeks. Many western European countries have well developed healthcare systems to deal with the coronavirus, which is now largely under control and consequently improving business and consumer confidence. Germany is the best example and on the path to recovery. Indeed, German markets are now outperforming the US, where covid-19 remains a big threat and economic progress is consequently at risk of being de-railed and political tensions are increasing as the Presidential election approaches in November. The EU has also reached a new rescue deal worth €750bn with a focus on the digital economy and green investments. The northern Asian countries of China, Japan, Taiwan and South Korea also look well placed to benefit over the coming months from the global recovery.

Please note, this does not constitute investment advice and we do not give tax advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. Overseas investments are affected by currency movements and exchange rates. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch – telephone 01392 875500 info@SeabrookClark.co.uk

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