Market Commentary & CNBC Interview

Tavistock Wealth - 19th February 2020
2019 was the year in which ESG investing joined the mainstream and became the “new normal”.
Environmental, Social and Governance (ESG)

Ironically, the turning point may have been President Trump’s withdrawal from the Paris Agreement on climate change in 2017 that set the tidal wave of “doing the right thing” in motion. ESG is no longer a side project designed to window-dress political and corporate correctness, but the new cornerstone of a remarkable sea change in financial markets that has increasingly influenced the direction in which leaders drive their operations. The ESG policy initiatives taken by the World Economic Forum in Davos-Klosters, COP26, European Commission, European Central Bank, BlackRock, Goldman Sachs and the Bezos Earth Fund are a few examples of the level of commitment to this global cause. Betting against this trend is no longer socially or financially acceptable, just ask the hedge funds that had been short Tesla shares!

Global Trade

January was a big month for global trade with the passing of the USMCA in Congress and the signing of phase-one of the trade agreement between the US and China. The unsettling outbreak of the Wuhan Coronavirus took some of the shine away from these landmark deals but there is every reason to be optimistic about the future of global trade. The UK and EU will also shortly begin their sprint trade negotiations that need to be completed by the end of the year. Given that both parties stand to benefit from a successful conclusion, there is every reason to be optimistic.

US Elections

The lengthy US electoral process has begun with the Iowa caucus and New Hampshire primary. The campaign trail is long and market volatility will oscillate depending on who will face President Trump in November. It is too early to pick a winner from the field of 8 Democrats still in the race. The US equity markets will fear a victory for either Bernie Sanders or Elizabeth Warren, but the primaries have only just begun. Donald Trump remains a highly polarising figure, but it is very hard to argue against the economic successes of his administration. Tax cuts and trade deals will play well in the minds of voters and most likely see the Republicans win another 4-year term in the White House.

Market Outlook

Looking beyond the recent events in the Middle East and the growing epidemic in China, the global outlook remains favourable for risk-assets such as equities and commodities but remains negative for bonds. A return to monetary policy stimulus in the US, Europe and China will add another leg up to the record setting equity bull markets, with sizable gains in emerging markets as they play catch up to the rest of the developed world. A weaker US dollar will also support emerging market equities and local currency debt markets. Our favourite EM equity markets are China, Taiwan, Russia, Mexico and Brazil. The UK has become investable again as investor confidence has returned. The “Get Brexit Done” mandate won by Boris Johnson has significantly reduced the cloud of uncertainty gripping Westminster. Global investors are now looking at the UK for the first time in many years and this will be the catalyst for a significant rally in sterling and domestic equities. Gold remains attractive given the low level of interest rates and provides an effective hedge for any correction in equities. Negative yielding government bonds (developed market) do not represent a safe haven for investors seeking a refuge from equity market volatility. Excessive levels of debt don’t matter to investors until they do, then it’s too late.

Environmental, Social and Governance (ESG)

Ironically, the turning point may have been President Trump’s withdrawal from the Paris Agreement on climate change in 2017 that set the tidal wave of “doing the right thing” in motion. ESG is no longer a side project designed to window-dress political and corporate correctness, but the new cornerstone of a remarkable sea change in financial markets that has increasingly influenced the direction in which leaders drive their operations. The ESG policy initiatives taken by the World Economic Forum in Davos-Klosters, COP26, European Commission, European Central Bank, BlackRock, Goldman Sachs and the Bezos Earth Fund are a few examples of the level of commitment to this global cause. Betting against this trend is no longer socially or financially acceptable, just ask the hedge funds that had been short Tesla shares!

Global Trade

January was a big month for global trade with the passing of the USMCA in Congress and the signing of phase-one of the trade agreement between the US and China. The unsettling outbreak of the Wuhan Coronavirus took some of the shine away from these landmark deals but there is every reason to be optimistic about the future of global trade. The UK and EU will also shortly begin their sprint trade negotiations that need to be completed by the end of the year. Given that both parties stand to benefit from a successful conclusion, there is every reason to be optimistic.

US Elections

The lengthy US electoral process has begun with the Iowa caucus and New Hampshire primary. The campaign trail is long and market volatility will oscillate depending on who will face President Trump in November. It is too early to pick a winner from the field of 8 Democrats still in the race. The US equity markets will fear a victory for either Bernie Sanders or Elizabeth Warren, but the primaries have only just begun. Donald Trump remains a highly polarising figure, but it is very hard to argue against the economic successes of his administration. Tax cuts and trade deals will play well in the minds of voters and most likely see the Republicans win another 4-year term in the White House.

Market Outlook

Looking beyond the recent events in the Middle East and the growing epidemic in China, the global outlook remains favourable for risk-assets such as equities and commodities but remains negative for bonds. A return to monetary policy stimulus in the US, Europe and China will add another leg up to the record setting equity bull markets, with sizable gains in emerging markets as they play catch up to the rest of the developed world. A weaker US dollar will also support emerging market equities and local currency debt markets. Our favourite EM equity markets are China, Taiwan, Russia, Mexico and Brazil. The UK has become investable again as investor confidence has returned. The “Get Brexit Done” mandate won by Boris Johnson has significantly reduced the cloud of uncertainty gripping Westminster. Global investors are now looking at the UK for the first time in many years and this will be the catalyst for a significant rally in sterling and domestic equities. Gold remains attractive given the low level of interest rates and provides an effective hedge for any correction in equities. Negative yielding government bonds (developed market) do not represent a safe haven for investors seeking a refuge from equity market volatility. Excessive levels of debt don’t matter to investors until they do, then it’s too late.

WATCH THE INTERVIEW ON CNBC BELOW:

This investment Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person. Source of data: Tavistock Wealth Limited.

Want to know more about the Equity Markets?

Please contact us here:

4 + 12 =

Recent blogs
All That Glitters…

All That Glitters…

The US dollar index, which represents the value of the dollar against a basket of developed market peers, fell through key technical support to its lowest level in 2 years.

read more
Q3 2020 Quarterly Perspectives

Q3 2020 Quarterly Perspectives

Despite suffering the worst pandemic in over a century, and the sharpest economic contraction since the second world war, global equity and bond markets staged one of the fastest recoveries of all time in Q2.

read more
Commodities Move Higher

Commodities Move Higher

The 10 year US Treasury yield has remained remarkably steady over the last few months, particularly as inflation expectations have gradually risen.

read more
Pivot To ESG

Pivot To ESG

The recovery in US equity prices, from the corona crisis, has been one of the most rapid in history.

read more
The Return of Inflation

The Return of Inflation

Quantitative easing, or QE, is where a central bank creates money to buy bonds. The goal is to keep interest rates low and to stimulate the economy during periods of economic stress.

read more
The Powell Pivot 2.0

The Powell Pivot 2.0

In January 2019 Jerome Powell pivoted from a policy of interest rate increases and balance sheet cuts to interest rate cuts and, later that year, balance sheet expansion.

read more
Don’t Fight The Fed

Don’t Fight The Fed

Over the last decade, the Fed has increasingly resorted to unconventional monetary policy, such as quantitative easing, or QE, to stimulate the economy.

read more
Super Contango

Super Contango

In an unprecedented day in the history of oil trading the price of the front month contract for West Texas Intermediate (WTI) oil fell below zero to -$37.63.

read more
The beginning of the end?

The beginning of the end?

The coronavirus has brought economic activity to a virtual stand-still and transformed a strong global economy, with lots of debt, to a weak economy… with lots of debt.

read more
Halcyon Days

Halcyon Days

Today, global equity markets have fallen again and yields on developed market government bonds have collapsed even further. In my opinion, there are two diametrically opposed events playing out at the same time.

read more
A Time to Remain Calm

A Time to Remain Calm

This is a time to remain calm, patient and focused on fundamentals whilst relying on sound risk management practices. Over the last week the number of confirmed cases of COVID-19 has risen to more than 83,000 people across 50 countries.

read more
ESG in the Spotlight

ESG in the Spotlight

Environmental, social and governance (ESG), a byword for sustainability, has in recent weeks occupied rarefied real estate on the landing page of several finance industry titans.

read more
UK Growth

UK Growth

The long-term growth prospects for the UK economy remain positive and the uncertainties surrounding the Brexit negotiations will fade with the passage of time…

read more
Rational Exuberance – US Equities

Rational Exuberance – US Equities

Since its low on the 9th of March 2009, the S&P 500 has gained over 277%, the second longest and third largest gain on record. Understandably, many investors are concerned about the size and scale of the current bull market.

read more
UK Election – Update

UK Election – Update

Theresa May finally relented to the mounting pressure from within the Conservative Party and announced that a general election will be held on the 8th of June 2017.

read more
UK Elections

UK Elections

Theresa May finally relented to the mounting pressure from within the Conservative Party and announced that a general election will be held on the 8th of June 2017.

read more
US Election

US Election

The eagerly anticipated US Presidential election has finally arrived and the latest opinion polls suggest that the result hangs in the balance. Hillary Clinton appears to have a very slender lead…

read more
Currency Risk

Currency Risk

In a recent interview with Proactive Investors, Ben Raven talks about how the last 20 years have seen a fundamental shift away from advisers recommending UK-centric portfolios to a globally diversified approach

read more