Markets jumped considerably over the last quarter, mainly due to the pace and scale of the unprecedented stimulus measures delivered around the world. But the outlook for recovery remains on shakey ground according to Architas fund manager Nathan Sweeney
Following a turbulent first half of the year, investors are now looking ahead and hoping that pent-up demand for consumption will be quickly unleashed and an economic recovery ensues.
Yet it is too early to call a recovery, according to Architas’ Nathan Sweeney, with a second wave of coronavirus impacting markets in the coming months. In addition, geopolitical risks remain, as the presidential election nears in the US, and Brexit negotiations finally end.
“The outlook for the United Kingdom is uncertain and slightly trails other developed markets.” He explains. “If the political backdrop becomes clearer, it could help improve investor confidence in the region. Lower risk bonds are reasonably attractive, providing some potential protection if stock markets become more volatile.”
However, in the US, things currently look like less gloomy. Buoyed by the extraordinary stimulus from the US Federal Reserve and government, US stocks have recovered strongly. As a result, Sweeney will be watching company earnings closely for continuing signs of improvement in the coming weeks. Sweeney does retain a balanced view on US bonds however: “Having rallied in recent months, some are starting to look a little expensive. Post-pandemic, we are likely to see a market that is prone to sharp sell-offs,” he says.
Looking further afield the slowing Chinese economic growth and US trade uncertainty could hurt stocks in emerging markets, although they look relatively good value relative to other regions. If US interest rates stay unchanged, it could help support bond prices, as many companies in the region borrow money in US dollars. But, as with emerging markets, any Chinese slowdown in growth could hurt the region as China’s export activity is a big influence. Furthermore, swings in the oil price impact the region’s significant energy industry: “The oil price has been rising on improving economic data, however developments will remain an important point to focus on.”
For a full global outlook, watch Nathan Sweeney’s World Market Review here.