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Market Commentary - Feb 2020

Markets spent the first half of January buoyed on December’s ebullience. The ‘Phase One’ trade deal agreement encouraged further re-ratings and clearer political waters in the UK bolstered sentiment. We were a great deal more optimistic entering New Year 2020 versus the prior year, however two left-field events confronted investors during the month.

 

The first was the sudden and frightening escalation of the conflict between the US and Iran, which diminished shortly after fears piqued, yet is unlikely resolved. Secondly, the outbreak of coronavirus in the Chinese city of Wuhan, which is causing widespread disruption across the world, and also in markets, as countries continue to lock-down borders and repatriate nationals.  Commentary on the virus has likened it to the SARS outbreak in 2003, with the correction in Emerging Market risk assets and currencies erasing gains made earlier in the month. The impact on Chinese and global markets, though hard to quantify and yet unknown, will likely be larger in the present day than 2003 given the importance of the Chinese economy within the global system, the burden on economic activity, and the timing of the coronavirus’ outbreak at the Lunar New Year. The green shoots of a tick up in the global economy have been temporarily stunted by this new threat; GDP will likely be impacted, and we will continue to monitor the situation as it develops.

 

The MSCI World index finished January down 0.8%, the FTSE EM index closed 3.5% lower, and yet the NASDAQ made a 2.0% gain in sterling terms. Quarterly earnings have been robust at the start of the year with US technology names reporting strong numbers and share prices notching up some impressive moves. Gold maintained its ‘haven’ status, with a near 5.0% gain in January, as its price nears a seven-year high, however there are signs of looming uncertainty reflected in the US bond markets. The 3-month/10-year yield curve closed the month inverted, and whilst there are questions over the recession-predictability of this portent, it nevertheless unsettles the investor psyche.

 

The first central bank meeting of the year took a back seat to the aforementioned contagion; however, the underlying economic environment continues to improve as the US Federal Reserve kicked-off the New Year sounding a “cautiously optimistic” tone and left its main interest rate unchanged. The Bank of England also held rates, however downgraded the growth forecast.

 

Britain has now left the European Union, after nearly 50 years of membership. Whilst clarity on the subject of our exclusion from the Union is likely to prove positive for UK markets, there is still much uncertainty to be resolved as we enter trade talks with several of our main trading partners, not least our European peers. It will be interesting to see how this develops throughout the rest of the year.

James Hambro & Partners LLP is a Limited Liability Partnership incorporated in England and Wales under the Limited Liability Partnerships Act 2000 under Partnership No: OC350134.  James Hambro & Partners LLP is authorised & regulated by the Financial Conduct Authority.  Registered office: 45 Pall Mall, London, SW1Y 5JG.  A full list of partners is available at the Partnership’s Registered Office.

Opinions and views expressed are personal and subject to change.  No representation or warranty, express or implied, is made or given by or on behalf of the Firm or its partners or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this document, and no responsibility or liability is accepted for any such information or opinions (but so that nothing in this paragraph shall exclude liability for any representation or warranty made fraudulently).  The value of an investment and the income from it can go down as well as up and investors may not get back the amount invested.   This may be partly the result of exchange rate fluctuations in investments which have an exposure to foreign currencies.  You should be aware that past performance is not a reliable indicator of future results.  Tax benefits may vary as a result of statutory changes and their value will depend on individual circumstances.

 

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