Market Insight - Global Monthly Outlook - May 2020 (covering April 2020)

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Global Outlook

Despite the continuing global spread of Covid-19, April saw both equity and credit markets stage a rebound, which has led to some of the biggest monthly gains certain sectors and regions have seen in years.

Central bank stimulus designed to provide relief from the pandemic has provided some support while an experimental antiviral drug that appears to be effective in reducing recovery times has provided much-needed hope.  The drug could perhaps help countries emerge from the lockdown measures that are severely impacting economic activity worldwide.  More and more workers are losing their jobs, while many small businesses are asking for loans to keep afloat, and yet, the financial markets are reporting gains.

United States

• Despite grim economic data as job losses mount, US equities recorded their best monthly gain since January 1987. The rally was supported by technology stocks as a result of consumers increasingly turned to home delivery and streaming entertainment as most of the country remained on lockdown.
• US equities have sharply rebounded since mid-March low, helped by timely fiscal and monetary measures.  Against this backdrop we are positive in US equities over medium term but expect short-term volatility ahead with confirmed case remaining at elevated levels.

Europe (including UK)

• European and UK equities recorded a strong rally over the month, despite record level contractions in several economic data points.  Markets were buoyed by central bank stimulus and potential easing of lockdown measures.  All sectors aside from energy returned positively. The strongest performing areas were information technology, materials, health care, and consumer discretionary.
• The economic news flow continued to highlight that the macro backdrop remains extremely challenging in Europe and UK.  We believe investors are generally risk off and rotating to defensive trading at above-historical-valuation.

Asia Pacific (ex Hong Kong ex China ex Japan)

• Asian equities rose in April as investor sentiment improved on the back of a stabilization in the Covid-19 global infection rate, a partial lifting of lockdowns in various countries and central banks’ expanded stimulus plans.  Healthcare continued to be among the best performing sectors as it is the beneficiary of increased demand for healthcare products and services.
• Markets volatility will likely remain heightened till a reliable resolution, such as vaccine, can be found. We prefer North Asian markets within the region. We believe they are ahead of others in terms of virus control and have stronger economic fundamentals.

Hong Kong and Mainland China (H-shares)

• Chinese and Hong Kong equities gained in April. The COVID-19 situation remains under control in China. This has provided a favourable backdrop for continued business recovery and been reflected in the recent economic data.  In Hong Kong no reported local new case for more than two consecutive weeks and government has relaxed some restrictions.
• Global equity markets have recovered since late March. We believe strong containment measures adopted across countries and large-scale easing policies on both monetary and fiscal fronts have helped support this risk-on sentiment and benefitted Chinese and Hong Kong equities  

Japan

• Japanese equities ended the month higher as investor sentiment was supported by rising expectations for the resumption of economic activity overseas and for Covid-19 treatments, as well as the additional easing from the Bank of Japan on April 27.
• It is premature to say when the coronavirus outbreak will be contained.  However, pent-up demand should boost economic activity afterwards.  We believe that the Japanese equities will get back on track, where corporate governance reform progresses, and companies carry on efforts to increase profitability.

Fixed Income

• The economic impact of closing the world economy became increasingly apparent in April. Some of the data released covering the previous month was the worst ever recorded.  Sterling investment grade corporate bonds delivered their best monthly return in decades. European high yield bonds had their best month since January 2012.
• Looking ahead, fixed income may offer limited value but will remain to be safe assets during current period of uncertainty.

Emerging Markets

• Global emerging equities rebound as governments and central banks continued to provide fiscal and monetary support to economies weakened by lockdowns linked to the coronavirus pandemic.  The best performing region was EMEA followed by Asia with Latin America being the laggard.
• We believe that valuations in emerging equity markets are relatively attractive, trading at a discount to their peers in the developed world, with selective long-term stock picking opportunities remaining.